Buckle Up Homebuyers: Navigating The Housing Market and Mortgage Rates in 2021
Mortgage Advisor
Henry Wilkes
Published on May 15, 2021

Buckle Up Homebuyers: Navigating The Housing Market and Mortgage Rates in 2021

With the current state of the housing market, buying a house right now is like flying out the day before Thanksgiving, although hectic, it may be necessary. With such high demand, while most new homeowners are paying over the asking price, they will be reaping the benefits of low interest rates three to five years down the line. In California, these historic rates have brought about record home sales and a nearly 25% increase in prices over the past year.

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What has brought about such a booming real estate market over the past couple of months? Between record-low interest rates, disequilibrium between supply and demand in the housing sector, and Americans eager to relocate during the pandemic, home sales have reached 14-year highs. So what does this mean for prospective homeowners and how can they navigate the current sellers' market? Today, I am breaking down what to expect from the current housing market and our predictions for mortgage rates this year and going into 2022!

Housing Market Craze: What Should You Expect From the Home Purchase Experience This Year

The first thing you need to ask yourself is not "is this the right to buy?" but instead, "Is this the right time to buy for me?" Regardless of the market, you should be buying a home because you want to. You want to own property and create a space for you and your family. If you decide to buy now, your property will have equity three to five years from now.

The current housing market comes with rising prices, low-interest rates, competitive bidding wars, and material shortage. There is currently an inherent need for low-interest rates. These rates will help spur the economy and produce jobs across various sectors. After the economic turmoil that was 2020, a boost in the economy and job market is much needed. This is great news for borrowers because it means lower monthly mortgage payments and bigger home-buying budgets. However, the downside is that supply cannot keep up with demand, causing prices to rise well above asking price. Although it is possible, getting your dream house may be very competitive.

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Navigating a Seller's Market.

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The reality is, we're living in a sellers' market. As a buyer, this means flexibility is key with pricing and you are going to need to move quickly if you find your dream home. So how can you prepare your finances for the 2021 real estate season? Instead of focusing on the purchase price, which will likely be higher than anticipated, focus on your monthly carrying costs including mortgage, property taxes, maintenance, and homeowner's insurance. When budgeting for your monthly expenses as a new homeowner, a good rule of thumb is to spend no more than 30% of your budget on your mortgage and the related housing costs. The option for adjustable-rate mortgages (ARM) is also making a comeback, this option allows homeowners to adjust their mortgages every five to seven years. You'll likely find yourself saving money month over month on mortgage and interest fees all while gaining equity in your home.

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To stand out against the competition and score the house of your dreams, you should be prepared when entering the house purchase process.

  1. First, of all, a pre-approval letter is crucial. With houses moving so quickly off the market this year, sellers are getting multiple good offers at a time. Without a preapproval letter on hand, you're likely to get beaten out by someone more prepared.
  2. Next, be prepared to undergo an extensive underwriting process. Underwriting is the process of your lender verifying your income, assets, debt, and property details to issue final approval for your loan. This will involve constant back and forth of financial documents and the anxiety that comes from waiting for approval.
  3. Next up, the appraisal! In the current bidding war environment, it's common for the appraisal to come in lower than your bid. An appraisal is an estimate of the value of a property, this is important information for a lender when deciding how much to approve a loan for. With the competition and prices how they are right now, you are likely going to be paying more than the property is worth. This may then in turn require you to put forth a larger down payment.
  4. Speaking of down payments, in today's competitive market a 20% down payment will also help you blow out the competition. Being able to put more money down will help you qualify for a lower mortgage rate and will decrease your monthly payment. This higher down payment will also help you stand out against other buyers and give sellers more confidence that your loan will close.

Bottom line, if you're feeling brave enough to enter 2021's housing market, be sure to go in with a competitive edge.

Housing Market and Mortgage Forecast for 2021 and 2022

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Looking ahead to the rest of 2021 and even early 2022, some changes can be expected in both the housing market and mortgage rates. Come late 2021 and quarter one of 2022, we should expect to see rates rising about half a percent. As rates even out, pricing may start to settle down.

Currently, limited supply remains a concern, holding back demand and continuing to put pressure on affordability. On the other hand, economic recovery has begun to put some upward pressure on mortgage rates. We have seen this in California as rates slowly go up, hitting the highest level in eight months. As a result, the momentum of California’s housing market has been easing slightly over the past couple of weeks.

Overall, over the next few months, Californians should expect prices to remain on an upward trend as housing demand continues to be above average despite prospects of rates increasing soon. It is expected and completely normal to see interest rates fluctuating, just as the real estate market does, but we won't see drastic changes ahead in the coming months. As more economic data become available throughout the year, slight interest rate fluctuations may be the result, but the average 30-year fixed-rate average will likely stay close to 3 percent in 2021

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Bottom Line

The pandemic has made Americans realize they now have the opportunity to work from and have more access to location freedom. More people moving away from cities into lower-density suburbs paired with low mortgage rates fueled a rapid increase in housing demand. Despite the uncertain economic times of the past year and a half, there has been a booming residential housing market.

While it may be tempting to join the excitement that is the real estate market right now, make sure your decisions are not driven by market conditions but instead of a need and desire to be a homeowner. If you're ready to double strap your seat belt and drive into the home purchase process with confidence, our team Wilkes Mortgage Group can help you prepare for this process.

With low rates, it's still extremely important to shop around for a mortgage lender before shopping for a home. To get yourself the best possible rate, your financial makeup and credit score will be of utmost importance. Nothing is worse than finding your dream home and getting surprised that your credit score isn’t what you thought it was. That's why it's important to review your finances beforehand and sit down with a lender to come up with the best possible solution for you.

At Wilkes's Mortgage Group, we are ready to enter the madness with you! As mortgage rates are expected to remain near borrower-friendly levels which will help maintain strong housing demand in 2021, we are prepared to give you the competitive edge you need to become a homeowner this year. Like we mentioned earlier, the first step is getting pre-approved and knowing how much house you can afford. Since there is no time to waste, check out our Home Purchase Qualifier today at https://wilkesmortgagegroup.com/

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Henry Wilkes Mortgage Advisor
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