Despite the tumultuous journey, people are finally starting to get a glimpse of life post-COVID. Although we are not out of the woods yet, the housing industry keeps on trucking as if COVID was just an afterthought.
According to new numbers, home values continued to climb at an accelerated clip through 2021. In fact, the typical American home sold for 17% higher than the median sales price from the prior year.1
While some consumers are getting a bit apprehensive about buying a new home as both home prices and mortgage rates begin to tick upward, the reality is that now is a perfect time to buy if you want to get in on this housing boom while you still can.
Let’s take a closer look at where the housing market might be headed, why home prices are on the move, and why you should be too!
Reasons to Buy Now While the Market is Still Hot
If you had the chance to invest in Google, Tesla, or even Apple before they became what they are today, would you? While some consumers see a home simply as a place of comfort and shelter, ultimately it is much more than that.
Owning your own home is a long-term investment that can appreciate over time if you take care of it properly. According to a 2019 Survey of Consumer Finances conducted by the National Association of Home Builders (NAHB), homeownership remained one of the biggest links to building transgenerational wealth.2
Similarly, if you have a mortgage, you will slowly gain equity over time as you pay down your principal balance by consistently making your monthly payment on-time. In a round-about way, your home can function as a quasi-savings account that you can leverage for as long as you own it.
Nevertheless, while the benefits to owning a new home seem quite clear, you still might be second-guessing whether now is the right time to buy. Here are a few additional reasons why today’s housing market is the prime time to purchase your new home.
1. Home Prices Are Going Up
Home prices continue to lurch forward despite many experiencing economic headwinds in recent months due to the COVID-19 pandemic. In fact, there may not be any price relief for some time.
Analysts predict another year of growing home prices. The expectation is that home prices will grow around 4-5% in 2022.1 This means that if you are waiting to buy that new dream home, you may end up paying more in a few months than you would today.
Another inadvertent consequence of waiting to buy is that you could potentially lose out on long-term gains from market appreciation. In 2021, the average homeowner saw their equity grow by about $50,200 over the year.1 If you wait to buy, you could lose out on some or even all that growth.
2. Low Inventory
If you think that if you wait eventually more homes will come to market giving you more choices to buy, think again. Even before the pandemic, the United States had been experiencing a housing shortage, although the situation was certainly exacerbated once COVID-19 hit.
As the pandemic became increasingly relevant, homeowners were reluctant to sell their
homes due to economic instability. Those who planned to sell may have postponed plans until the market began to settle.
Currently, estimates put the deficit somewhere close to 4 million units.3 But with the lack of inventory, there is opportunity. It’s worth it to get buy now rather than wait decades for the housing supply to normalize.
While an alternative might be to build your own home, rising inflation has forced costs to skyrocket. Builders are also experiencing worker shortages and constant supply chain issues, making it an expensive option as of late.
3. Rising Mortgage Rates
Mortgage rates have been near historic lows for so long that it almost seemed impossible for them to go up. Nevertheless, the mortgage rates are expected to increase throughout 2022 as the Federal Reserve tapers purchasing of mortgage-backed securities.
Increasing mortgage rates can further inhibit your purchasing power, especially if home prices continue to go up. You could also end up paying more in accrued interest over the life of your loan.
Buying a home now could mean being able to secure a fixed-rate mortgage with a much lower interest rate than waiting a few months. Even if you may pay a little more upfront for your home, you could potentially offset this with the amount you save on interest alone.
4. Increasing Credit Scores
If you aren’t buying now because you are worried you can’t get approved for a new mortgage, you are not alone. But the reality is that around 87% of all home buyers end up financing their home purchase in some way, shape, or form.4
In fact, conditions have been improving, making it easier for more borrowers to qualify for mortgage financing.
Recent data shows that the average FICO score in the United States is now around 716.5 Scores seem to continue an upward trajectory even despite the COVID-19 pandemic.
Even if your FICO credit score isn’t quite at that level, there might still be mortgage financing solutions available to you. Many lenders can qualify borrowers with scores of at least 620 (sometimes lower).
Lenders are also shifting focus on purchase activity meaning pricing has become more competitive making it so that you can shop around and get the best deal possible.
1 Arnold, C. (2022, January 20). Home prices rose faster than ever in 2021. The typical home gained $50,000 in value. NPR. Retrieved February 16, 2022, from https://www.npr.org/2022/01/20/1074377076/home-prices-rose-faster-than-ever-in-2021-the-typical-home-gained-50-000-in-valu
2 Kuo, F. (2021, February 16). Homeownership Remains Primary Driver of Household Wealth | Eye On Housing. Eye On Housing | National Association of Home Builders Discusses Economics and Housing Policy. Retrieved February 16, 2022, from https://eyeonhousing.org/2021/02/homeownership-remains-primary-driver-of-household-wealth/
3 Freddie Mac. (2021, May). Housing Supply: A Growing Deficit. http://www.freddiemac.com/research/insight/20210507_housing_supply.page
4 National Association of Realtors Research Group. (2021, March). 2021 Home Buyers and Sellers Generational Trends Report. NAR. https://www.nar.realtor/sites/default/files/documents/2021-home-buyers-and-sellers-generational-trends-03-16-2021.pdf
5 Dornehlm, E. (2021, August 17). Average U.S. FICO® Score at 716, Indicating Improvement in Consumer Credit Behaviors Despite Pandemic. FICO Decisions Blog. Retrieved February 16, 2022, from https://www.fico.com/blogs/average-us-ficor-score-716-indicating-improvement-consumer-credit-behaviors-despite-pandemic#:%7E:text=The%20upwards%20trend%20in%20the,601%20as%20of%20April%202021