The COVID-19 pandemic surprisingly boosted the housing market. Many people took advantage of the low mortgage rates. Housing supply was low, so buyers had fewer options but more competitors for the perfect place, urging them to rush in making the best offers. Now that vaccines have been rolled out, and more and more states are reaching herd immunity, will the housing market change?
Some key predictions for the housing market are increases in new-home construction and more supply of new homes. Since the vaccines have reduced risks for getting sick, sellers will be more confident to put up their properties on the listings. On the other hand, buyers can perform in-person house tours again instead of the virtual house tours they did last year.
Below, let’s see what the experts have to say about the vaccination’s effect on the housing market:
Things Will Not Revert to “Normal” Right Away
Even though the vaccines have helped lower down new cases of COVID-19, it doesn’t mean things will go back to normal right away. We’d still be living in the new normal for quite some time, and as such, the housing market will remain robust. According to Mashvisor, there could be an increased demand for metro markets. This means that homes in metropolitan areas will be popular among buyers. It’s the opposite of the trend during the pandemic when people from cities wanted to move to suburban areas. With the population in cities so dense, the viral transmission was more likely, so homes in suburban neighborhoods were preferred.
But after the vaccinations, economies will open up, and commercial opportunities in cities will spring up once more. That may urge people who moved out of cities to return. Lower rents in certain rents will help attract returning and new city dwellers. Sure enough, the New York City and San Francisco real estate markets saw rents fall to 12% and 5.1%, respectively.
Mashvisor also predicted a rise in mortgage rates. As the economy bounces back, an increase in home prices may be the result. The prices will be driven further by the tight competition due to the low supply of homes. Realtor.com, in fact, predicts that home values will jump by 5.7% in 2021.
However, as of May 29, 2021, the predictions of mortgage rates increasing aren’t met yet. According to experts, they expect the rising rates to happen over the long term. While rates had already increased this year from their all-time lows in 2020, they were still relatively low compared to skyrocketing rates a few years ago.
Simply put, mortgage rates will continue to stay low, so the housing market will feel like as it was in 2020. The latest prediction for July 9, 2021 is that the average rate for a 30-year fixed mortgage will be 3.0684%. For a 15-year fixed mortgage, it will be 2.3771%, and for a 5/1 adjustable-rate mortgage, it will be 2.8552%.
How the Changing Rates Can Affect Your Budget
Mortgage rates fluctuate every day and every week, but the changes are typically small. Big changes happen over months and years. However, even a small change can impact your budget.
If the rates shift steadily in one direction, your home-buying or refinance plans can be affected. For example, a 0.1% change in interest in a 30-year mortgage with a $350,000 principal and cost or save you $19 every month and around $7,000 in interest throughout the life of the loan. Rising interest rates will determine whether it’s best to refinance because the goal is for the ongoing savings to outweigh the upfront costs. In addition, increasing interest rates can affect the price of the home you can afford.
Alternatively, high demand for homes (due to affordable prices) can also hurt your budget because of the intense competition. “Bidding wars” cause homes to sell way higher than their listing prices. If you really want to get a home other buyers are competing for, then you should be ready to offer the highest bid, even if it goes over your budget.
To find out the price range of homes you can afford, get preapproved for a mortgage by a reputable lender, like Supreme Lending. Consider working with a real estate agent as well because they know their way around the market, and they can help you come up with competitive but reasonable offers. Plus, they pair you up with sellers who can offer what you need in a home.
Though the vaccinations have helped the economy recover and will keep housing affordable, you may have a harder time buying a home because of the tough competition. Hence, plan your budget as soon as possible, and consider the possibility of a bidding war. These days, it’s your relentlessness that will win you the keys to your abode.