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Mortgage rates have dropped to unprecedented levels in recent months. Since the summer, the 30-year fixed loan has mostly held steady at an average rate of under 3%, while 20- and 15-year mortgages have been comparably competitive. In spite of that, last week, mortgage application volume for new home purchases fell 0.5% compared to the previous week, representing the lowest level in six months.
Why aren’t buyers clamoring for homes?
With such low rates, you’d think purchase mortgage activity would be increasing. But the reason mortgage applications have declined could boil down to ridiculously high home prices. In September, the median U.S. home price was $311,800. Back in January, it was $266,200. That’s a sizable difference.
These huge home price spikes push some potential homeowners away. Of course, we can attribute some of the high prices to — wait for it — low mortgage rates, which have created a surge in demand. Talk about a vicious cycle.
But low housing inventory is also to blame. So far in 2020, housing inventory has been down 32.5% compared to 2019. With limited homes to choose from, buyers are getting stuck in bidding wars. And as they compete and have to outbid one another, it drives prices upward.
Should you buy a home this year?
We don’t know how long mortgage rates will stay low, so you may be tempted to buy a home sooner rather than later to take advantage of them. But right now, what you save on a mortgage, you might more than pay for in the form of a higher purchase price. Furthermore, you might get stuck with a home that’s in less-than-desirable condition, thereby adding to your repair and renovation costs.
As such, you may want to wait until 2021 to buy a place of your own. There’s a good chance housing inventory will open up as the year progresses, especially if progress is made in the fight against COVID-19. At the same time, our country’s economic recovery is unlikely to be swift, so there’s a good chance mortgage rates will stay competitive for quite some time. If you hang tight until 2021, you may find you’re still able to get a low mortgage rate, only you might also pay $20,000 less for a home in your target neighborhood.
Furthermore, delaying your home purchase gives you a chance to make yourself a more appealing loan candidate. Mortgage lenders reserve their best rates for borrowers with outstanding credentials. So, if you decide to buy in six months, you’ll have an opportunity to ensure you tick all the boxes. You can boost your credit score, pay off some existing debt to lower your debt-to-income ratio, and grow your cash reserves for a more substantial down payment.
2021 might be a better time to buy
It’s not surprising that mortgage applications for new homes have declined recently. Buyers are finally getting tired of paying a premium for standard homes and the fact that they’re pulling back could send prices downward. That, too, is a good reason to delay your home search until 2021 kicks into gear.
Chances are, mortgage rates won’t stay put at multi-decade lows for much longer. 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.