Is Now a Bad Time to Buy a Home?
If you've read the news, you may have heard that it is a "terrible" time to buy a home.
And the truth is, buying a home right now comes with some real challenges – including soaring prices and low inventory levels.
But "terrible"? Not for everyone.
In fact, for some people, it might be the perfect time to buy a home. So when you are ready, don't let "conventional wisdom" stop you. Focus on what's right for you in today's marketplace.
Review your home purchase eligibility (April 6, 2021).
In this article (jump to …)
Challenges in today's real estate market
There are a number of obstacles in today's real estate market. For the right buyer, none of these obstacles need to be a deal breaker. However, it is important to know what to expect.
Lastly, there are rising mortgage rates. Interest rates have risen in seven of the last eight weeks, according to the Mortgage Bankers Association.
The current average of a 30-year fixed-rate loan is 3.33% – almost 0.50 percentage points higher than at the beginning of the year.
When prices go up, it becomes more expensive to buy a home. Buyers will either need to adjust their price range down or prepare for a monthly payment that is slightly higher than planned.
In addition to rising interest rates, there is also a supply problem. Data from Realtor.com shows the housing stock has fallen 52% over the year. This shortage has created fierce competition for the few homes that exist and has driven prices up significantly.
Nationwide, the median home price was $ 370,000 in March – an increase of more than 15% over the past 12 months.
These are some of the main reasons you might hear people say it is a "terrible time to buy a home".
But every story has a downside. And even in the current real estate market, there are bright spots for potential buyers.
5 Reasons Why Buying a Home Is Not a Terrible Time
Everything has its challenges – and the housing market is no different. While there are definitely some problems for today's homebuyers, there are plenty of reasons to be optimistic too (especially when looking back at the past).
Here are just a few reasons why buying a home is not such a bad time:
1. Mortgage rates are still very low
"Record low" rates may be gone, but they are still very low – especially if you look back on history.
According to Freddie Mac, the average 30-year mortgage rate in 2018 was 4.54%. And 10 years earlier? It was in the 6% range.
Compared to historical interest rates, today's interest rates are still very low – often translating to hundreds less per month and likely tens of thousands less mortgage interest over the life of the loan.
Given that most experts believe that mortgage rates will continue to rise as the economy continues to improve, buying a home at current rates looks pretty good.
Check your prices today (April 6th, 2021)
2. Affordability is still high
With rates rising and real estate prices rising, one might think that real estate would be absolutely unaffordable. However, according to the data, home buying power has actually increased, increasing by 19% over the year.
The reason is twofold. First, the historically low mortgage rates we talked about above keep mortgage payments affordable. In addition, incomes have increased, albeit modestly, in many areas.
Today's median house prices are (historically) cheaper in 52% of American counties.
The latest US Home Affordability Report from ATTOM Data Solution in 2021 confirms this. According to the report, average home prices are cheaper (historically) in 52% of American counties.
"That was a 63% decrease in counties in the first quarter of 2020 and 95% over the same period five years ago," the report said.
"But rising wages and falling mortgage rates have offset the nearly 20% rise in house prices over the past year and have helped average house prices remain affordable for average earners across the country."
3. Buyers have more flexibility in choosing their location
The coronavirus pandemic has allowed more Americans to work from home than ever before. In fact, according to Upwork, around 50% of the US workforce works remotely.
If you're one of many on this boat – and the morning commute or proximity to work isn't an issue – then you have the upper hand when buying a home, especially in today's competitive marketplace.
Instead of fighting the crowds in your current market or in a busy urban or suburban area, your work flexibility allows you to go anywhere. You can focus your house hunt on places where more properties are available – and the prices aren't that high. (More on these markets later!)
4. Mortgage standards are easing
At the beginning of the pandemic, mortgage lenders tightened to reduce risk as many Americans faced job losses, wage cuts, and other economic troubles.
Some lenders even asked for more than 700 credit scores and 20% down payments from buyers. Others stopped offering low credit options (such as FHA mortgages) altogether.
Now these stricter standards are loosening up again.
MBA's Mortgage Credit Availability Index is currently 124.6 – down from 120.9 six months ago. An increase in the index indicates that mortgages are easier to come by.
That said, if you have a less-than-great credit score, your chances of securing a mortgage loan are much better than they were a few months ago – another reason why it might be a good time to buy a home.
Check Your Mortgage Eligibility (April 6, 2021)
5. Home equity is increasing
Rising property prices can be a challenge for first-time buyers. There are also advantages to buying in a market where house values are rising.
Even if you pay a low down payment, rising prices mean the value of your home will rise faster.
That way, you can use your equity sooner – for example, by canceling personal mortgage insurance (PMI) or borrowing on your equity to carry out renovations.
There are also benefits for current homeowners.
Increased home values mean that home sellers often make higher profits. That way, you can make a substantial down payment on your new home.
You may even have the option of using your current home equity as a down payment on a vacation home or investment property.
While high home prices can be a barrier, they also increase the benefits of home ownership for those who can get a foot in the door.
Review your home purchase eligibility (April 6, 2021).
Where are houses still affordable?
House prices are definitely going up, but the trend is not universal. In some parts of the US, prices are still affordable or even falling.
According to Realtor.com, prices in Memphis even fell 1.4% over the course of the year. The median home price there is only USD 240,000 – well below the national median.
Homes in Miami and Denver are also becoming more affordable (prices are down 1.2% and 0.4%, respectively).
If you look at the percentage of wages a home costs, Schuylkill County, PA is your best bet. There real estate only requires 6.3% of the average salary in the region – much less than the national average of 23.7%.
Bibb County, GA, Fayette County, PA, Macon County, IL, and Robeson County, NC are also affordable, requiring only 10% or less of local wages.
Regionally, house prices are only falling in the East South Central Census division, which includes Alabama, Kentucky, Mississippi, and Tennessee.
The Mountain Division (Arizona, Colorado, Idaho, Montana, New Mexico, Nevada, Utah, and Wyoming) has the highest prices.
Fortunately, given today's work-from-home trend, many buyers have the flexibility to choose their location and browse cheaper markets.
Who Should Buy a House Now?
Of course, today's market presents unique challenges. So buying a home is not the best choice for everyone.
However, for some people, it might be the perfect time to buy – and even make serious savings in the long run.
Here are some scenarios you might want to consider buying a home now:
They plan to buy in the next year or so anyway. If you believe buying a home is in your near-term future, pulling the trigger sooner rather than later is probably your best move. With home prices and Rates are expected to riseActing now can save you serious money over timeYou work from home and are flexible on site. When you are not tied to a particular market, your home can really be taken care of. This could mean less competition, lower prices and an overall better dealYou are confident in your job and your wages. Unemployment is improving, but historically it is still high. If you are confident that your job is solid and you don't see any wage cuts in the near future, buying a home can be wise – especially if you have saved the funds to make it happenYou have enough savings to buy a home in comfort. Paying the deposit and closing costs shouldn't erase your entire savings account. If you can afford the upfront costs and still maintain an emergency fund, you're in a good buy position. Fortunately, Advance payment assistance Programs can help buyers who need an extra boost for their savings
Additionally, buyers with strong credit usually get lower mortgage rates and better deals. The average credit score for mortgage borrowers was 753 for the last month, according to ICE Mortgage Technology.
However, you don't need a perfect score to qualify. The average score on FHA loan applications was slightly lower at 682. Many lenders will approve FHA borrowers with FICO scores as low as 580.
Check your purchase eligibility
Buying a home is always a personal decision. While the overall market will have an impact on prices and housing competition, the decision to buy will ultimately depend on two factors:
Are you ready to buy You should be financially stable and plan to stay in the same area for at least 3-5 yearsCan you get funding? Will a mortgage lender approve you for a home loan and can you afford the home you want?
The first factor is personal – only you know if buying a home is the right phase in your life.
Second, you can easily respond by getting pre-approved a mortgage. Lenders can quickly take a look at your finances and see how much home loan you have been approved for.
If you're ready in both areas, the answer is yes – this is a good time for you to shop!
Check your new tariff (April 6, 2021)