If you’ve read our recent post on Why Home Construction Prices Are Rising, you might be asking, “Is now a good time to purchase a home?”
It’s a difficult question to answer – and depending on who you ask, you might get a yes, no, or maybe!
“Maybe” is probably the best short answer. But it sits in an undefined space between a definite “yes” and a definite “no,” meaning your maybe could lean more toward one than the other.
To help you figure out if now is a good time to purchase a home, let’s look at everything we know!
Quick Overview of the 2021 Housing Market
As discussed in the aforementioned post on home construction prices, the 2021 housing market is looking reasonably healthy, if slightly imbalanced. That imbalance is, of course, an issue of supply vs. demand.
The real estate, home construction, and home renovation industries are finding themselves in a situation where demand outweighs the available supply. Not to repeat what we already covered in that earlier post, but this essentially means the perceived value is much higher – which drives prices up.
In the real estate industry, this leads to what’s called a seller’s market. Buyers are at a disadvantage because they face more competition when bidding on a new home.
This can easily lead to a home’s final selling price being higher than its original listing price.
But once again, not all is doom and gloom.
In 2020, largely due to the Covid-19 pandemic, interest rates hit some historic lows – and the Federal Reserve isn’t planning on increasing them any time soon. And, of course, this includes mortgage rates.
Are We Heading Toward a Housing Market Crash?
Lower mortgage rates mean buyers can expect to have a bigger budget for buying a home than usual. This, of course, plays right into the seller’s market because it feeds the competitiveness in bidding wars and helps drive prices up.
The natural concern is that this could cause prices to rise above the market’s willingness to pay. Because this willingness to pay is a huge defining factor in demand, demand levels could theoretically drop to or even below the supply levels.
If that happens, we could see a housing market crash.
Ken McElroy, a highly successful figure in the real estate market (primarily investment analysis and related niches), published a YouTube video titled The 2021 Housing Crash back in July 2020.
In it, McElroy argues that with the instability in income security we were all facing at the time, we could reasonably expect to see increased evictions and foreclosures. As a result, we’d experience a sharp spike in the supply of homes available to buy.
McElroy did publish a much shorter update (Why Haven’t Housing Prices Crashed Yet? – Housing Market Update) in October 2020. In it, he points out that the pandemic response was a catalyst, but the effects are delayed in the same way (in his own words) “Tsunamis happen after the earthquake.”
If There’s a Market Crash Coming, It’s Being Delayed
Minority Mindset, another financial YouTube channel, published a more neutral take on the issue: The TRUTH About The 2021 Housing Market Crash. It’s likely McElroy’s October 16 update was made at least partially in response to this October 15 video.
The best-case scenario in Minority Mindset’s video suggests that we’ll avoid a housing market crash in 2021 because the economy will have recovered enough that foreclosure rates won’t increase.
As for the worst-case scenario, the economy doesn’t recover in 2021, leading to increased foreclosures and a pump in the housing supply. But with sellers basing listing prices on the seller’s market, prices stay higher or even increase, leading to an even bigger drop in demand and a market crash.
Well, according to financial experts, the economy is expected to grow at least 6.8% in 2021.
We’ve seen phenomenal recovery rates, but they’re decelerating. And that means we could see some turbulence in the coming months. According to FirstTeam Real Estate, while the economy as a whole is close to pre-pandemic rates, some markets – including housing and labor – “remain misbalanced.”
So what does this mean?
Well, Minority Report also gave a middle-ground scenario where the economy isn’t fully recovered, and we still see an increase in housing supply. As a result, prices start decreasing, and we experience a partial crash.
The good news is, if there is a crash, whether through the middle-ground or worst-case scenarios, historical data points to it being delayed to around 2023.
So… Is Now a Good Time to Buy a Home?
The consensus seems to be that, yes, now is a good time to buy a home.
Zillow’s post on When Is The Best Time to Buy a House? offers some general guidelines that can help you better decide whether it’s a good time for you as an individual, though.
Some highlights include:
- August tends to be one of the best months to buy a home, as prices generally start dropping while the number of listings remains high.
- When the mortgage rates are low (as they are right now), it’s generally a good time to jump into the market.
- Consider your personal finances, as the hidden costs of homeownership (taxes, insurance, etc.) average $9,080/year.
So, to buy or not to buy?
Ultimately, that depends on you!
If you’re unsure, consider whether home remodeling might be a better option.
Contact us today and get started!