Published in: Mortgages | Aug. 21, 2020
By: Maurie Backman
The housing market is on fire, and sellers are coming out winners. But what about buyers?
If you read the news, you'll see that mortgage rates today are historically low. Yet a lot of prospective buyers are struggling to purchase property for one key reason: Home prices keep soaring.
In July, the median price of a sold home climbed 8.5% from last year, all the way up to $304,100. Given that fact, you'd think buyers would be balking at the idea of paying more for a home, but that's not what's been happening. Rather, sales of existing homes on the market jumped 24.7% in July compared to June, reports the National Association of Realtors. That’s the strongest monthly gain since 1968.
The reason homes are selling like lightning is simple: There aren't a lot of homes to choose from, and so those that are listed are getting snatched up quickly. With mortgage rates being so unbelievably low, buyers are clamoring to lock in great deals -- even if it means paying a premium for the properties they're buying.
In fact, as of the end of July, there were just 1.5 million homes for sale, which represents a 21.1% decrease from the previous year. That's the lowest July supply on record since 1982.
9 in 10 Americans can qualify to refinance their mortgage. With mortgage rates plummeting to multi-decade lows, there's no better time to cut your monthly mortgage payment.
With mortgage rates hitting record lows (case in point: the 30-year fixed mortgage has been averaging around 3% for much of August), now's a good time to buy a home from a borrowing perspective. But if you're not in a particular rush to move -- meaning, your current lease isn't about to expire and you don't have a job offer in another part of the country you've just accepted -- then it could pay to sit tight and wait for housing inventory to pick up a bit.
Many would-be sellers have held off on listing their homes during the COVID-19 pandemic. As that situation improves, we'll likely see an uptick in inventory, which will, in turn, give you more choices as a buyer. Not only might that save you money on the price of your home, but it will also help ensure that you get the type of home you want without having to settle.
Now you may be thinking: "If I sit tight and wait six to 12 months to buy a home, won't I miss the chance to lock in a low mortgage?"
Maybe, but possibly not. While it's impossible to predict how mortgage rates will trend in the coming year, there's a good chance they'll stay relatively low. And in some cases, you may come out ahead financially by locking in a higher mortgage rate but paying a lot less for a home.
Imagine houses in your target neighborhood are averaging $300,000 right now due to limited inventory. If you're able to put 20% down and lock in a 30-year fixed mortgage at 3%, you'll be looking at a monthly mortgage payment of $1,011.85 (to be clear, that's principal and interest only; it doesn't include property taxes and other monthly homeowner expenses).
Now, imagine you wait until early 2021 and those same homes are averaging $280,000. Assuming you still make a 20% down payment but the best rate you can snag for a 30-year fixed loan is 3.5%, you'll be looking at a monthly payment of $1,006.36 for principal and interest. In this case, even though you didn't get as good an interest rate on your mortgage, you're still paying less per month by virtue of scoring a lower price on your home.
Of course, this is just one example. The point, however, is that while today's housing market is very beneficial to sellers, it's not as great for buyers. As such, you shouldn't let the allure of a low mortgage rate drive you to make a homebuying decision you end up regretting.
Chances are, mortgage rates won't stay put at multi-decade lows for much longer. In fact, the Fed has already signaled that it expects rates to continue increasing. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase. Click here to get started by scanning the market for your best rate.
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