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Should I buy a house now or wait?

2021 will be a good year to buy a home BUT you should wait for the market to shift

The real estate market in 2020 (with the exception of March and April) has been terrible for home buyers.   Inventory is at all-time lows, demand is at all-time highs, and mortgage rates are at all-time lows.   This has driven home prices through the roof.   Not a good news if you are in the market for a home.

But don’t worry change is coming.

The Biggest Homebuying Opportunities Are Yet To Come

Real estate values are considered a lagging indicator of market shocks, according to Emile L’Eplattenier, chief real estate analyst and managing editor for TheClose.com. “Think of it like a tsunami that follows an earthquake: Even with massive damage to the stock market and dozens of industries all but collapsing, we won’t start to see the effects play out on real estate pricing for a few months at least,” he said.

For one, homeowners have been spoiled by tight inventory and hyperspeed gentrification over the past few years, L’Eplattenier said. So those who are in the unfortunate position of having to sell during the pandemic will stubbornly stick to pre-recession pricing for a few months.

Further, the government has take several measures to stimulate the economy and protect consumers who can’t afford their bills. But that won’t go on forever. “Over the next few months, the government will eventually put the brakes on printing money. Eviction and foreclosure moratoriums will cease in many markets. And we [will] start to see thousands of businesses go under. This is when the real estate market is going to really start to wobble and fall,” said Owen Dashner, owner and operator of Red Ladder Property Solutions, a house-flipping business in Omaha, Nebraska. “Thirty million-plus Americans unemployed is going to equal a lot of unpaid leases and mortgages, ultimately leading to foreclosures and a market downturn.”

The foreclosure process takes a long time, so homes that soon enter foreclosure won’t show up at auction for at least another few months. But once they do, housing prices should fall fast. “Foreclosures are like weeds in a garden; they pull down the value of aggressively priced homes, and quickly,” L’Eplattenier said.

What that means is that if you can hold out on purchasing for the next 4-6 months or so, there will be an opportunity to buy at a large discount compared to now. Of course, you don’t want to swoop in and prey on the misfortune of your neighbors. But the truth is that if you’re going to buy, it’s better to wait until prices bottom out rather than spending tens of thousands more than necessary. “The correction is coming, and with it [will] come some opportunities for those prepared,” Dashner said.

Mortgage Rates Are At All-Time Lows

The Federal Reserve cut its federal funds interest rate in early March by 0.5 percentage points to a range of 1% to 1.25% in response to the pandemic’s effect on our economy. Two weeks later, it made another emergency rate cut of 1 percentage point to a range of 0% to 0.25% ― the lowest level since the Great Recession.

Though the Fed’s target rate doesn’t have a direct effect on mortgage interest rates, there is a connection between the two, and mortgage rates dropped accordingly. Mortgage rates fell to all-time lows, and the average rate on a 30-year fixed-rate mortgage now hovers around 2.8%.

Andrea Woroch, who advises consumers on how to save money, said she refinanced her current mortgage just a few weeks ago. She was able to shave more than 1% off her interest rate, which means she will save more than $100,000 over the life of the loan. (Woroch is a former contributor to HuffPost.)

“Whether you’re looking to buy or refinance, these low rates can help lower your monthly payment and save you thousands of dollars over the life of your mortgage loan, making this a good time to buy,” Woroch said.

Even so, historically low mortgage rates can’t solve one problem that some prospective homeowners are running into: a lack of houses for sale. “Inventory is lower because people don’t want to sell their homes during this outbreak,” Woroch said, adding that home prices are probably not at their lowest levels yet.

At the same time, stricter lending requirements are making qualifying for a mortgage more difficult: If you recently deferred any bill, mortgage or credit card payments, for example, that may work against you when you apply for a home loan, Woroch said. All of these factors are likely contributing to the extended amount of time properties sit on the market.

 

Bottom Line

The good news for prospective homebuyers with stable income and plenty of cash on hand is that if massive layoffs continue, we may see a lot of inventory coming up in the next few months at discounted prices, making it a buyer’s market.