Mortgage Rates Are So Low. Is 2021 The Year To Buy A House?
Is Now The Time?
With mortgage rates being the lowest they’ve been in quite some time and many people having more flexibility than ever to live wherever they want, a common question that seems to get thrown around quite a lot these days is: Is it time for me to buy a home? It’s a fair question but unfortunately the answer to this question will vary depending on your specific situation and so the answer is maybe, BUT our recommendation would be to keep your powder dry.
We’re not telling you not to buy a home, because in certain circumstances it may be totally logical for you to jump into the housing market right now. With everything going, on we would really only recommend buying a home to those individuals who might have some spare cash and are willing to compromise a bit - and here’s why:
The competition to buy a home right now is at a fever pitch. As we mentioned earlier many people now have the flexibility to live wherever they want with new work from home arrangements and so a large number of people have decided to move or find a second home in hopes of living closer to their family or somewhere that’s more peaceful and tax-friendly. This large rise in demand however hasn’t seen an equal rise in supply.
In fact, the supply of homes everywhere seems to be reaching record lows as homes are getting quickly getting bought up in massive bidding wars with fewer folks willing to put their homes on the
market either due to fear of catching COVID or that if they do they will be unable to afford the next home they would like to purchase. It’s actually so bad that some areas have more real estate agents than homes available on the market. Newly built homes can’t seem to be filling the gap either because supply costs for things like lumber have skyrocketed due to logistical and shipping issues caused by the pandemic.
This large imbalance of supply and demand has created a situation that highly favors the sellers. This is something you’re going to want to keep in mind as you consider making bids on various houses. Another thing you need to consider when buying a home is that unlike anything else you might buy, homes cannot simply be returned for a refund. It’s a large commitment that you’ll be stuck with and as such it’s definitely something you do not want to rush into. Due to all of the reasons that we’ve just discussed though buyers have unfortunately done exactly that and created some genuinely unfortunate stories along the way.
Highly competitive markets like California consistently seem to be selling at prices that are $100,000+ above their asking price, which you have to realize is also on top of the already record high prices they’ve shot up to. Many families who buy these homes have admitted to not doing their due diligence and feeling compelled to outbid anyone else on the market after having been on the losing end for other properties they’ve tried bidding on in the past. This sense of desperation is not only leading them to overpay for their new homes but also foregoing critical inspections that would have otherwise brought to light some concerning issues with the new property they are about to buy.
The Weiss family, for example relocated to the Bay Area from Brooklyn, but had to pay around $100,000 above the asking price of $1.89 of their new home. Only after closing in November did they realize that the wood on one side of the house was absolutely devastated by damage from woodpeckers which were apparently a systematic problem for the surrounding area. The seller of course conveniently forgot to mention the birds and the structural damage but had the Weiss's not been in such a rush they very likely would have caught this issue before their closing on the property. So now not only were the Weiss's in a position where they had overpaid on their new home that was already at a record high price, they also needed to invest in a renovation to fix the structural damage which was a projected that would cost them roughly an additional $150,000.
They’re far from the only ones to run into this type of situation. There have been other reports of home buyers being so eager to buy their home that they also skipped the inspection only to find that the overpriced home they just bought had toxic mold.
So getting back to the main question at hand here, should you buy a home in 2021? As we’ve just demonstrated there are quite a few factors that are working against you as a buyer in this market.
Housing supply is at a record low while housing prices are at a record high. Skyrocketing and limited supplies are keeping new homes from coming into the market to cover the supply and demand imbalance and as a result you’ll be walking into one of the most fiercely competitive markets housing has seen in quite some time. If you have the cash available though and your new home is something that you just know will greatly align with your future well-being it could be worth making the bid, but remember to always do your due diligence. It’s very likely that you’ll need to bid high to win, especially in competitive markets like California, Texas, Florida and the like, but do not, and we repeat, do not forgo the inspection. Should you actually decide to move forward with buying the home, don’t forget to budget for insurance and closing costs accordingly. The last thing you’ll want to do is think you’re making a significant investment into your future only to realize that it’s more than you can afford and put yourself in a world of headaches from debt and late payments.
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