The Story of Buying and Selling a Home in 2021
Despite the high unemployment rate, home sales have been very strong through most of 2020 and into 2021. A combination of low mortgage interest and low housing inventory have been the largest contributing factors to such a strong housing market even in the midst of these turbulent times. Both buyers and sellers have been wondering, how did we get here? And what do we do now?
Cause and Effect
Let’s examine one of the major causes of the unusually strong housing market: low mortgage interest rates. When the Federal Reserve sets Federal Funds interest rates, they attempt to set an interest rate that will lead to high rates of employment and stable prices. Because where the Federal interest rate goes, other interest rates will follow. In March of 2020, the Fed lowered interest rates as low as possible to try to keep the economy moving as lockdowns began.
At the same time, 30-year (30Y) fixed-rate mortgage rates had been dropping precipitously since a high of almost 5% in November of 2018. But while they had started to go up again at the end of 2019, in January and February of 2020, 30Y mortgage rates had once again started to fall. Then, after March, 30Y mortgage interest rates steadily fell and are now, in February 2021, wavering around 2.7%.
When buying a home, the mortgage loans can be structured in a few ways, with the most popular being the 30-year fixed-rate mortgage. With rates now at 2.7%, the monthly payment can be lower for larger loans.
This has been great for those who have been able to work from home and kept their jobs through the pandemic. With mortgage rates low, and typical expenses for things like travel, restaurants, and entertainment depressed by the pandemic, home buyers are able to save more and get more home for their money.
The numbers from the National Association of Realtors (NAR) show that there were only 1,070,000 houses available for sale at the end of December 2020 . According to The Motley Fool, this is the lowest number of available homes since 1982. So while low mortgage interest rates are certainly part of the equation, they are not the only reason why the housing market is currently so competitive.
The COVID-19 pandemic has had many unforeseen effects on the economy, but the housing market is one that seems especially incongruous. When unemployment is high, usually the housing market slows down as people have less money to move or buy a new house. Unlike the last economic crisis in 2008 though, the 2020 pandemic has had a very uneven effect on the population.
In 2020, while unemployment has been high, it is uneven, affecting those with service, travel, and entertainment jobs most severely, while those who are in jobs that can work from home have been mostly stable. Employees that can work from home have even been able to save more because they aren’t spending on travel, restaurants, and entertainment outside of the home, like theatre and concerts.
Work From Home
“Work from home” is a key phrase in understanding the current busy housing market. Over the past year, those who can work from home have been spending much more time at home than they are used to. This can highlight issues that might be less prominent in more normal circumstances. Their current home might not have a dedicated home office, or seems smaller and much more crowded when everyone in the family, including children, are home at all times.
Also, many companies are considering or have already announced plans to permanently transition workers to working from home all or part of the work week. Which means that sacrificing to have a smaller home closer to work to cut down on commute time becomes much less important. Moving to an area with more space and lower cost of living seems much more attractive.
It’s not just buyers though- sellers are also a factor. Many sellers are reluctant to sell during the pandemic. People aren’t as likely to need to move for work. And older people are much more reluctant to go through the moving process, where there are many more vectors for exposure, from movers and potential buyers.
And the cost of lumber has skyrocketed. This comes from limits in supply because lumber mills were unprepared and are still running more slowly due to safety measures; and strong demand from not only the housing industry, but also the shipping industry. Large appliances and furniture for home improvements are very popular and the growing need for wooden shipping pallets contributes to the high price of lumber. This means that home builders and renovators are having a hard time sourcing materials at a good price, which results in putting less homes on the market as well.
What to Do
So what are buyers and sellers to do? Potential buyers are motivated by the opportunity to buy a home at a low interest rate, but put off by the bidding wars that are the result of low inventory. Potential sellers are motivated by the opportunity to sell at a good price, but put off by the daunting task of selling during a pandemic.
Both of these problems can be helped or even solved by working with a good realtor. Good realtors will, of course, be able to help buyers find homes they like. But importantly, they are able to advise on what things are best to help win in a multiple bidder situation, and what shouldn’t be compromised. Many buyers early in the pandemic found themselves regretting waiving inspections and bidding on houses they didn’t consider thoroughly just to win.
And for sellers, a good realtor will be able to walk you through the steps for selling and will be familiar with the precautions that need to be taken for safety. Our Downsizing series of blog posts is a great place to start, especially the one about staging your home.
If you are thinking of buying or selling your home in 2021, contact Geva and Jane at 571.249.4382 for great advice. They work with a team of trusted professionals that will help you on your real estate journey.
Elizabeth Marcano, Writer for Geva and Jane Real Estate