With a new year upon us–and a particularly tumultuous year behind us–many thoughts are focused on how we’ll make life better in 2021. One major goal that was a big theme last year and promises to be equally powerful this year is homeownership–whether that’s owning your first home, trading up to accommodate a growing family or making some moves that accommodate the new Work From Home reality.
We have an expert in this subject matter to talk to us about historically low mortgage rates, trends in supply and demand and other factors that can influence your home buying decisions this year. Watch as Jay Myers, Loan Officer with Rock Mortgage, talk homeownership with Good Day NWA.
2020 disrupted virtually every business in the United States. How did it impact housing and homeownership?
That’s a really great question as we look ahead into 2021! There were profound changes in the housing market and mortgage rates driven by the pandemic that are going to cause ripple effects throughout the new year. Three things I would note:
● First the historical patterns of homebuying were disrupted. Normally we see the greatest activity in spring and summer, but the pandemic really spread out buying patterns as wholly different factors came into play for folks. Work from home, economic dislocation, people fleeing major metropolitan areas…all shifted the demand curve.
● Second, and this is huge, home loan rates just fell right through the floor. Mortgage rates are sensitive to many economic factors, almost all of which served to drive down rates in 2020.
● And third…really a result of the earlier factors…demand for homes grew in a situation where inventory was already quite low. With low inventory and eager buyers, home sales volume skyrocketed and time on market dropped to new lows. That’s good for sellers of course but presents challenges to buyers!
So it sounds like 2020 was actually a GOOD year in the housing market…
Yes, you’d have to say that despite the wreckage across the economy as a whole, the housing market fared quite well. It was actually a very good year for both buyers and sellers.
So if someone was setting a New Year’s goal regarding homeownership, what should they be thinking about?
That’s important to consider. It’s definitely a GREAT time to be thinking about homeownership–as you said earlier, whether you’re just getting started in a first home or thinking about a change for other reasons. Back to my earlier comment, the very first thing to note is that interest rates are
historically low…and they’re projected to stay low. Predicting rates of course is like predicting the stock market so nobody can say how long or how low they might remain in 2021. What we know for sure is that right now is that 30-year fixed mortgages are trending around 2.5%. Just to put that in perspective, compared to historically typical mortgage rates of [5%], your monthly payment on a [$200,000] 30-year loan would be [almost $300 or 30%] less at these current rates. So the bottom line is that in 2021, you are going to be able to buy more house for your payment than at most any other time in history.
So interest rates remain a huge factor in 2021 planning. Vaccines are coming into play now, but we’re seeing record high Covid numbers. How does the pandemic likely affect our New Year homeownership resolution?
You’re right. Covid was a major factor in the 2020 housing market, and it’s likely to be as much or more a factor in 2021 as the human and financial impact continues to play out. Most people expect a “new normal” after the pandemic. I just look at it in my own life and those around me….we don’t really think our lives are going to return to exactly what they were. Take Work From Home as an example. A lot of big companies like Facebook have already announced in the future they’ll have huge percentages of their employees working virtually. Smaller companies will likely follow suit. Millions of displaced workers will have started home businesses. All of these factors influence the housing market because now families are going to be shopping for home offices, Zoom rooms, tech-forward homes, and backyard oases.
In 2020 you saw mass exoduses from highly concentrated metropolitan areas to the suburbs and exurbs. That’s not so much a factor in Arkansas because we don’t have those kinds of megacities. But what we do see is that flight to rural, bucolic areas and smaller cities is driving demand for folks relocating. People who were renting in New York, Chicago, Houston and who can now work from
anywhere can now take that lease payment and buy a home with 2, 3, 4x as much space while building equity. We’ve seen this phenomenon in Arkansas already, and there’s no reason to expect it will abate in 2021. For folks watching today, it will increase demand and increase competition for that perfect abode you’re shopping for.
What other trends do you expect in 2021–whether driven by the pandemic or other factors?
Two related answers: high demand and low inventory. Which are clearly driven by all of these factors we’re discussing–the pandemic, stay-home orders, low interest rates, etc. We expect 2021 will see a record number of home buyers. Homeownership rate will reach 70 percent according to Redfin; that’s a level we haven’t seen for 15 years. More workers will become permanently remote. More renters will buy homes because it’s just so darn favorable now. Larger homes with more space in smaller cities and rural areas will sell at a faster rate than smaller, urban dwellings. But overall, there will be more buyers than ever, creating high demand, strong sales and faster turns.
Second: low inventory. Home inventory was already low going into the pandemic in 2020.Then inventory levels and time-on-market reached new lows in 2020 and are expected to remain low in 2021. With low inventory levels, we can expect for more new homes to be built in 2021 than previously expected. Low rates and a decrease in commercial construction have driven down construction costs to the point where it is affordable for developers and individuals to build to meet demand.
High demand, low inventory…that sounds like a seller’s market?
Sure, you could frame it up that way, and if you’re selling you can hope for strong offers and a quick sale. For the buyers of course there are all these favorable factors. The fact is, every home transaction requires both a buyer and seller! What’s encouraging is that this sector of our economy promises to be very vibrant in 2021 and when home sales are hot there are all kinds of ripple effects as people decorate, improve and enhance their properties.
Sounds like a hot real estate market with lots of things to think about for the folks with a 2021 New Years Homeownership goal. If they’re serious about getting in the game and achieving their goals, what’s a good gameplan?
My first piece of advice would be to really understand what you are looking for and identify your must-haves and location. Then assemble your team to help you act quickly. Partner with a Realtor that is an expert in what you are looking for. Find the right mortgage lender and get pre-approved. That will tell you your budget and what your maximum offer can be. Be prepared to act quickly, because properties are not staying on the market long.
For more information, visit www.rockmortgagelending.com or call 479.321.3355.