To say that 2020 was a chaotic year for the US real estate market would be an understatement. Set against the context of a global pandemic, property prices rose, mortgage rates reached an all-time low, and many potential buyers had to put their plans on hold, either because of financial uncertainty or because choices were scarce. But, with a new year ahead, Americans are once again ready to pursue their dream. According to NerdWallet’s 2021 Home Buyer Report, the outlook for this year is overwhelmingly positive and, despite the tremendous impact of the pandemic, many Americans are ready to purchase a home. According to the study, 11% of participants, the equivalent of 28 million people, plan to buy a house, which shows a lot of optimism for the future. But could this optimism be misplaced? In the past five years, around 5 million houses were purchased, per year, in the US, so it’s highly unlikely that everyone who wants to be a homeowner in 2021 will also become one.
So, what exactly makes the road more challenging, and how can you make sure you meet your goals?
Twenty-eight million people might sound like a lot, but this number isn’t that surprising that 2020 was a disruptive year. In 2020, 39% of Americans who wanted to buy a house canceled their plans because of COVID-19 and its associated effects. The vast majority of them (38%) did so because they didn’t have enough for a down payment, and 32% because they didn’t have a good enough credit score. But money wasn’t the only problem. Even families who had the funds decided to wait it out simply because home buying was too difficult in 2020: listings were down nationally, the competition was fierce, and many families weren’t comfortable with virtual home viewings and remote negotiations.
Now that the country is slowly recovering from the financial blow of the pandemic and more than half of US adults have received at least one dose of vaccine, people are ready to resume their plans. They want to seize the opportunity while residential mortgage rates are still low and, overall, they’re optimistic about what 2021 will bring. According to NerdWallet, 50% believe they will make more money this year and 50% that they will save more.
While a healthy dose of optimism is always useful when planning to buy a house, the market will not return to the way it was in 2019, and you need to be prepared for its new particularities.
Biggest impediments for homebuyers in 2021
Everyone wants to take advantage of the low mortgage rates and make up for lost time, but buying a home in 2021 may not be such an easy thing to do. First of all, there is a lot of competition. You might not have one week to decide with the entire family if you want to buy a house, and you might not be able to refuse a home for reasons like the color of the floors or the kitchen tiles. Supply cannot keep up with the pent-up demand, so buyers should be prepared for some tight bidding wars. Experts are even saying that you may not be in a position to negotiate down the price and that, in many cases, you might be forced to go well above the asking price to stay in the game. And that brings us to the second challenge: rising home prices.
According to the latest data, US home prices are growing at the fastest rate since 2005, reflecting the imbalance between supply and demand. For instance, prices for Phoenix homes rose by 20%, and in Oregon, the average house now costs $534,000. That may not be such a big problem if you have a flexible budget, but, otherwise, rising home prices could become a problem. It’s also worth pointing out that many lenders have become cautious due to the COVID-19 crisis and may prefer sticking to low-risk segments. There are alternatives to banks out there, but navigating the new world of digital lenders can be difficult without external help.
What can buyers do to boost their chance of success?
Those who want to buy a home in 2021 need to balance optimism with realistic expectations. While it’s not impossible to become a homeowner, the process may be more challenging than expected, and being well-informed is the best strategy for avoiding disappointment. The first and most important step you can do to boost your chances of finding a good house within your budget is to work with experienced real estate agents and mortgage counselors.
Purchasing a home is a major investment that will change your finances for many years to come, so the number one requirement is to have a realistic overview of your financial situation and what you can afford. The good news is that loan products are starting to be more diverse, and banks aren’t your only option anymore, but it’s a good idea to have someone on your side who can help you understand the terms of each loan product and whether it’s right for you. Becoming a homeowner is great, but not if the mortgage terms affect your financial stability. If all professional advice points to the fact that you are not financially prepared to take out a mortgage, then it’s wiser to wait. Another year of rent may help you boost your credit score, savings, and chances of lender approval.
Real estate experts advise their clients to be flexible. Competition is fierce, and negotiations will not be carried out in the same way. Not even the location carries the same weight it did before. Due to the pandemic, people have been working more from remote locations, so they are no longer limited to properties in the vicinity of their workplace. In fact, a quarter of Americans who have worked from home in 2020 said that they bought or planned on buying a house in a different location thanks to the flexibility of remote work.