With Potential Rises in Home Prices and Interest, It May be Time to Buy
Zillow predicts home prices to rise 10.3% in 2021. With a potential increase in interest, now may be the right time for many buyers, especially first-time homeowners.
In late December of 2020, Zillow, a home-listings and real-estate information website, released their predictions for the 2021 housing market. This alone was nothing newsworthy, as Zillow is constantly releasing information and articles on real estate statistics.
But there was a number in the release that was striking, at least to those who read closely: 10.3%.
That, according to their forecast, will be the rise in home prices between November of 2020 and November of 2021. While not unheard of, this represents a massive increase in home prices. It’s an increase that would benefit current homeowners and could make purchasing a home more difficult for anyone who waits until after the summer buying season.
Add in the chance for growing interest, and it may be time to stop waiting and buy your home!
Will Home Prices Rise? Will Interest Climb? Why it May be the Time to Buy
Zillow Predicts 10% Increase in Home Prices Throughout 2021
To help you understand this difference, let consider an example…
Suppose you have a home was valued at $750,000 in November of 2020. This is certainly a reasonable property value for homes in high-cost areas like San Diego. For simplicity, let’s just assume that prices rise exactly 10%. This would add $75,000 in value to your home. In a single year, therefore, your property value would go from $750,000 to $825,000. That’s a massive increase, and it didn’t come from costly renovations or upgrades; it simply came from letting your hone’s value grow with time.
Sales volume, according to Zillow, will remain high as well. The forecast calls for almost 7 million real estate sales in 2021, which would be the most since 2005. In 2020, there were roughly 5.7 million homes sold. This was lower than expected at the beginning of the year (pre-pandemic), but certainly positive considering all the challenges faced by the real estate sector since spring.
These numbers don’t come out of thin air; there are real, tangible causes for this prediction. Home prices are expected to rise thanks to a combination of factors, including a new wave of young homebuyers and the optimistic expectation that COVID-19 will begin to decline. With pent-up demand after 2020, it seems that the road is smooth and clear for a large rise in home prices.
Another factor driving these increases could be interest rates. But will interest rates remain low?
Interest Rates are Still Low, But Will They Stay that Way?
One of the top factors contributing to higher sales and increased home prices is interest rates. Interest rates remain low, which means buyers can purchase homes with a lower total cost. Interest rates are so low, in fact, that it seems almost impossible that they could go any lower. If anything, they will stay the same, but the most likely situation is that they will steadily climb upward.
While the overall market has countless challenges ahead, there is an overall sense of optimism, not just with the real estate sector, but with the national and global economy as a whole. As (we hope) vaccines become more available, more restrictions on businesses are lifted, and people are once again comfortable doing routine transactions, we will likely see economic growth.
This is, without a doubt, good news. However, a rising economy is often tied to rising interest rates.
Lowering interest rates is a theoretical strategy for boosting the economy. The idea is that if interest rates are low, it will encourage more economic activity. So when the economy is sluggish, interest rates are usually lowered.
But as the economy recovers, we may see a slight uptick in interest rates.
What Does All of This Mean to Potential Homebuyers?
In the future, we will likely (but not certainly) see two issues that make home buying less attractive. The first is most important: rising home values. If you wait until late 2021 to purchase a home (and Zillow’s forecast is correct), you may end up paying $25,000 to $100,000 more for a home, depending on your price range. The rise in housing prices will be regional. Some areas will see large increases while others will see little or no increase, but across the country you will likely find more expensive homes if you wait.
The second factor is interest rates. At the very least, interest rates will likely stay the same, which means, from a rate perspective, there will be little difference from the start of the year to the end. But they could go up slightly (or significantly), which means you could not only be buying a more expensive home, you could have higher interest rates on your more-expensive purchase.
For these reasons, it seems like now is an excellent time to purchase a home!
Note: Nothing is Guaranteed and Personal Situation Still Matters Most
It’s important to point that in real estate, much like life in general, nothing is ever guaranteed. While there are indicators hinting that real estate prices will rise and interest rates may trend upwards, it’s possible (however unlikely) that the opposite could happen. It’s important to keep this in mind while making any decisions on your mortgage or home purchase.
In the end, it’s your personal situation that matters most. Regardless of home prices, interest rates, or other factors that you can’t control, you need to be financially prepared for homeownership. This can mean many different things, but a strong credit score, a solid downpayment, and a stable job are all important. If, for example, you have no downpayment (and don’t qualify for zero-down lending programs), it may be best to wait a year or two, generate some savings, then enter the real estate market.
Work with an Experienced Mortgage Agent in San Diego
If you want to take advantage of low interest rates while purchasing a home before prices climb upward, contact our team today.
We take a common-sense approach to mortgage underwriting, helping you find the right loan for your specific needs. Whether you want a mortgage loan for your first house or want to learn more about financing for investment properties, we are here to provide the information and support you need!