As we continue to live in a time when mortgage rates are extremely low, buying a house is high on the priority list for many people. What happens when rates are low but buyer demand is high? Is housing still affordable? I'll share what I recently learned from Windermere's chief economist, Matthew Garden, to give you a better idea of what to expect as you prepare to buy a home in the months ahead.
We are experiencing a time of historically low mortgage rates so many of us are looking to buy a house. A number of things occur when rates are low and buyer demand is high. Low mortgage rates increase buyer demand. High demand for housing, especially when inventory is low, pushes home prices up. See what's happening? All of these things can make finding a home, at an affordable price, much more difficult.
According to Matthew, mortgage rates are predicted to be low in 2021 as well. Actually, the Federal Reserve recently indicated that interest rates will likely remain low through 2023. So, should you wait a year or more to buy a house? Consider this, if rates are low and buyer demand is high over the next few years, you're going to pay even more for a home because prices will continue to rise. In addition, you will pay more for a down payment and your credit score might have to be higher. With home prices rising faster than mortgage rates are dropping, you would be wise to contact your real estate agent today.
Another facet of the high demand/low inventory/low rate equation is your income. As home prices increase, your income may need to increase also. You may find yourself needing an extra $3,000+ in income to be able to afford a home. For example, a house priced at $270,000 in Feb. 2020 might have been financed at a slightly higher rate but required an income of approximately $56,800. The same home purchased in Aug. 2020 for $310,600, at a lower rate, would require an income of $59,476. That's a difference of approximately $3,000 in buyer income to purchase the same house. With home prices climbing, you'll likely need to earn more income to be able to afford a house.
Finally, when looking at housing availability, consider the number of homeowners who refinanced their homes. The numbers were record high this year! This could mean fewer of these homeowners wanting to sell in 2-3 years (who wants to give up an incredibly low rate!?). In addition, mortgage rates could be much higher in 2022-23 despite predictions. If those who refinanced aren't going to sell their homes in a few years, the availability of homes may not improve, therefore, buying a house right now is highly favorable.
With mortgage rates and housing inventory low, buyer demand high, and a lot of competition amongst home buyers, home prices are climbing. If you want to buy a home at a great rate and an affordable price, you may want to contact your real estate agent today. The longer it takes to find a home to purchase, the less likely it is you will be able to find a house you can afford. So get pre-approved for a low mortgage rate, talk to a real estate agent and start viewing homes virtually to increase your chances of finding a home in today's market.