Wow, 2020 was a challenging year. With so much that happened across the country, you might be wondering how it’ll impact real estate trends in 2021.
While the pandemic did disrupt home sales in the spring of 2020 (which is usually considered the hottest season for real estate), the market quickly made an impressive rebound. Real estate experts have reported that the surge in home sales toward the end of 2020 actually made up for the spring market losses.1
Will we see more of the same results in 2021? How will the housing market shake out in our current economic climate? Whether you’re selling, buying or staying put, here are the 2021 real estate trends you need to know!
Real Estate Trend #1: Slim Pickings for Home Buyers
Okay, this is probably the hardest real estate trend to swallow—so brace yourself: Inventory has been incredibly low! For perspective, inventory was down nearly 22% in November 2020 compared to the previous year.2 There just weren’t enough houses for sale over the year to meet buyer demand.
But don’t worry, we’ll walk you through what to expect if you enter the market.
What Slim Pickings Mean for Buyers
Low inventory means you need to be on your toes when you go house hunting—the best homes will likely be snatched up fast. In December 2020, more than 7 in 10 sold homes were on the market for less than a month.3 That doesn’t leave much time to hem and haw over your home search. If you want to find a good home in this slim market, here’s some advice:
- Sacrifice some wants. If you can’t find the house you want, be willing to give up some “nice-to-haves” for your “must-haves.” Find the least expensive home in the best neighborhood you can afford and upgrade over time.
- Expand your search. What if the location where you’re planning to buy is too competitive? You might be surprised at the gem you can find in a less popular neighborhood. Working with a real estate agent who really knows the area is the best way to find a home that fits your budget and lifestyle.
- Get preapproved ASAP. Getting preapproved for a mortgage before you go house hunting is a must in any market. But in a market with such a limited home supply, not doing this legwork ahead of time gives a preapproved buyer free reign to swipe the home you want right out of your hands.
What Slim Pickings Mean for Sellers
Low inventory means low selling competition! You can probably expect to see offer letters flooding your mailbox the same way Hogwarts sent Harry Potter his acceptance letters. Since your home will be one of the (relatively) few listed on the market, you could be in the driver’s seat. So enjoy possibly picking the best offer and moving at a pace that best suits your timeline.Find expert agents to help you buy your home.
But after your home is sold, you probably won’t be in the driver’s seat anymore (if you’re buying again). So decide on plans for your next home before you sell.
Real Estate Trend #2: Home Prices Are Still Rising
Next up: home price trends. In November 2020, existing home prices grew by a whopping 15% compared to last year—rising to a national median of well over $300,000! This marks more than 100 straight months of year-over-year price gains. Sellers, this should put a big smile on your face! And hang tight, buyers—we have some advice for you too.
What Higher Prices Mean for Buyers
If you’re going to buy a home in this expensive market, you absolutely must find out how much house you can really afford. Commit to staying within that budget amount no matter how much pressure you feel watching competitors pluck good homes off the market.
To feel confident about buying a home this year, follow these tips:
- Limit your house payment to no more than 25% of your monthly take-home pay. This payment includes principal, interest, property taxes, homeowner’s insurance and, if your down payment is lower than 20%, private mortgage insurance (PMI). Plus, don’t forget to consider homeowner’s association (HOA) fees when preparing your budget.
- Save at least a 10–20% down payment. A 20% or more down payment helps you avoid PMI—an extra fee added to your mortgage to protect your lender (not you) in case you don’t make payments. Anything less than 10% will drown you in extra interest and fees. Saving a big down payment like this is possible! If you stay patient and motivated, you can save for a five-figure down payment by this time next year.
- Choose a 15-year fixed-rate conventional mortgage. The overall lowest cost home loan is a 15-year fixed-rate mortgage. Rip-off mortgages like the 30-year mortgage, FHA, VA, USDA, and adjustable-rate ones will charge you so much extra in interest and fees and keep you in debt for decades. No thanks.
Now crunch the numbers yourself with our mortgage calculator and figure out a monthly payment your budget can handle. And then work with an expert agent to find houses for sale within that budget.
For more help on buying a home in this crazy market, check out our free Home Buyers Guide. It has all the answers you need to buy a home with confidence.
What Higher Prices Mean for Sellers
A nice profit may be on the horizon! And that’s great news because you’ll really want that extra money when buying your next home. To get the best offer for your home, work with an experienced real estate agent who really knows your local market.
And be sure to wait for the right offer. Some buyers may try to gut punch you with a low number. If you aren’t in a hurry to move, wait for an offer that gives you the most profit. Remember, the less desperate person always has the upper hand when negotiating.
Real Estate Trend #3: Mortgage Interest Rates Are Still Super Low
The average mortgage interest rate (that fee lenders charge as a percentage of your loan amount) has been nice and low lately. In fact, the average rate for a 15-year fixed-rate mortgage dropped to 2.31% in November 2020—the lowest it’s been since Freddie Mac started reporting nearly 30 years ago!4 And now economist geeks think interest rates will continue to hover around 3% in 2021, which is still pretty low.5
If you want to refinance or get a mortgage from a trustworthy lender who actually cares about helping you pay off your home fast, talk to our friends at Churchill Mortgage.
What Lower Rates Mean for Buyers
Sure, interest rates are low right now—which can help with affordability. Just be careful not to let that pressure you into buying a house when you aren’t really ready. A super low interest rate on a house you can’t afford is still a bad deal. So remember to stick to our advice on monthly payment limit, down payment amount and mortgage type (see Trend #2) and you’ll be in great shape!
What Lower Rates Mean for Sellers
If interest rates stay low, buyers will be more motivated to buy your home sooner than later. But if interest rates do start to increase later in the year, just plan for your house to be on the market a little longer. If you don’t plan on moving anytime soon, you might still be able to take advantage of these super low interest rates and shorten your payment schedule by refinancing your mortgage.
Real Estate Trend #4: Online Real Estate Services Are Growing
No doubt you’ve heard of real estate services like Zillow that allow you to browse or list homes for sale online with the click of a button. But did you know that online services are now offering to buy and sell your house for you?
Here’s how it works: You tell companies like Zillow or Opendoor about the house you want to sell. They buy it from you, pump some money into it to resell at a higher price, handle all the home processing stuff like inspections, repairs, and home showings, and then charge you pretty much the same as an agent commission for selling costs—plus, some of these companies include an additional service fee (icing on their cake). They promise less hassle, but it may mean less profit for you than working with a top-notch agent who could sell your home for more money.
Using a “Virtual” Agent
Hybrid services like Redfin aim to reduce traditional agent commissions by handling things online. This gives you partial services that are similar to working with an agent, but for a fraction of the cost. Think of it as a middle ground between selling with an agent and selling by yourself. But when selling a home, be wary of the middle ground. Your home is your biggest asset, and you get what you pay for!
Mobile or Online Closings
In related news, digital technology is also making it easier to handle document-based tasks virtually. For example, many home transactions are using electronic signature apps and remote online notarization to streamline the process.6 In other words, there’s a chance you can buy or sell a house this year without getting out of your car or ever changing out of your bathrobe and slippers.
Real Estate Trend #5: Risky Buying Options Are More Accessible
Okay, let’s cover some newer “creative” ways to purchase a home that are trending (beware!).
First, if you’re itching to buy a home but can’t quite afford it yet, some sellers like Divvy offer a rent-to-own agreement. In this deal, you agree to rent the home for a specific amount of time (could be several months to several years) before becoming the owner. The plus side of rent-to-own is that it allows you to bypass the time it takes to save for a down payment and get into a house fast. Also, it means you don’t have to qualify for a mortgage right away.
The downside of rent-to-own is that it makes your rent more expensive because some of your monthly payment will go toward future homeownership. But if you later decide you don’t want to buy the house or something breaks your contract, all those extra payments will have been a waste. Plus, you may be required to handle repairs and maintenance yourself even while renting! This option leaves you in a very vulnerable place financially.
Bottom line: If you feel like you can’t afford homeownership, it’s best to wait until your financial ducks are in a row.
Loans for Down Payments
Another risky buying option to avoid is taking out a personal loan to fund a down payment. Purchasing a home with no money down is never a good idea. Remember, you want at least a 10–20% down payment. Buying a house with anything less will rob you of your other financial goals by having you pay too much extra in interest and fees. Thankfully, not many mortgage lenders allow you to do this—plus, it can even hinder your ability to qualify for the amount of mortgage you need.
What if I’m Not Buying or Selling a Home This Year?
You may be thinking, All this is great, but I’m not going anywhere anytime soon. We hear you, and here’s what you should know for now:
1. Equity probably won’t decrease through 2021.
With most housing markets at low risk for a downturn, Freddie Mac believes home prices will continue to rise in 2021—but at a slower pace of nearly 3%.7 This is still good news for sellers because you’ll likely make a nice profit when you do decide to sell. Continue to monitor how much your home is worth to make sure your equity (what your home is worth minus how much you owe on it) is going up.
2. A real estate market crash looks unlikely.
With all the uncertainty behind everything that happened in 2020 and with home price growth possibly slowing down in 2021, you might be wondering if the housing market could collapse. Well, it’s impossible to know for sure, but economists suggest a housing crash is unlikely.
After all, the super low mortgage rates are motivating buyers to enter the market, which increases demand. But there’s still a very low supply of home listings. This is keeping home buying competitive and allowing home price growth to soar.8
3. Regardless of your neighborhood, buyers are interested.
Since home prices have experienced rapid growth over the past few years, some buyers may be less choosy. In fact, determined ones might be willing to consider neighborhoods that don’t have easy access to highways or aren’t in close proximity to a big city. If you think you live in an unpopular neighborhood or believe your home isn’t what buyers are looking for, think again. Now may be your perfect time to consider selling.
Take Control of the Trends With a Top-Notch Real Estate Agent
Whether you’re selling or buying, you can take advantage of the current trends by partnering with a professional real estate agent. Through our Endorsed Local Providers (ELP) program, our team will match you with agents we recommend in your area. Our real estate ELPs are top-performing professionals in your market who’ve earned our seal of trust by actually caring about your financial goals.
ABOUT THE AUTHOR
Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.