Published May 11, 2021|4 min read
Thinking of buying a house? So is everyone else. It’s a hot real estate market, and doesn’t seem to be cooling down anytime soon.
Home prices are at a record high. The median price of an existing home sold in March was $329,100. That’s a 17.2% increase from March of last year, according to the National Association of Realtors.
What’s spurring this home-buying frenzy? Here’s what prospective buyers need to know — and how they can gain an edge in the market.
Mortgage rates have risen slightly in the past few months, but are still near record lows, driving high demand for homes. Some Americans hope to capitalize on these low rates, while others want to upgrade to a larger space while working from home, said Tricia Lee, associate broker at Compass, a real estate company.
“It’s the pandemic shuffle right now,” she said. “Half my clients are telling me it wasn’t really their plan to buy right now, but they want to take advantage of these low rates. COVID-19 has created these temporary changes, but people are making permanent decisions.”
Home inventory is also low, and fewer homes means higher prices. The number of homes for sale dropped over 28% in March 2021 compared to the previous year, NAR reports. On top of that, COVID-related construction delays and rising costs have homebuilders struggling to keep up. For example, the price of certain raw materials like lumber have soared over the past year.
Spring is typically home-buying season, and a combination of many potential buyers and few homes for sale has created an extremely competitive market. Real estate brokerage Redfin reported almost half of homes are selling within one week of hitting the market. Bidding wars abound: The New York Times reported one seller had 54 bids on their home in just three days.
Limited inventory makes it harder for buyers to find adequate homes, said Lee. This means a lot of people have to compromise.
“Buyers are pulling from retirement funds, selling off stocks and bonds, or asking for gifts from family to get a chance to buy,” said Lee. “Some are even offering full cash payments on homes.”
If you need a mortgage loan (which most buyers do), you may run into trouble. Some mortgage lenders are tightening their standards, approving only those with stellar credit. The median credit score for a mortgage borrower in early 2021 was 786, according to the Federal Reserve Bank of New York.
It’s difficult, but not impossible, said Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors.
“This is one of the biggest purchases you will ever make,” she said. “You’re going to want to think everything through before.”
Lee and Evangelou offer more tips on how buyers can get an edge in the market.
Be realistic. Make sure you are looking for homes you can actually afford. It’s easy to get caught up in a whirlwind of bidding, but don’t offer up money you don’t have. Due to the competition, you may have to bid higher than asking price on a house, so keep this in mind when evaluating your savings. Use a mortgage calculator to determine how much your monthly payment will be, but keep in mind there are lots of hidden costs that come with home ownership, like homeowners insurance and property taxes.
Get your finances in check. Mortgage lenders will typically look at your recent financial history, including your spending habits and credit score, to determine if you qualify for a loan. Lee recommends “cleaning up” your spending a few months prior to applying. If you’re worried about your credit score, here’s a couple of ways to boost it in 30 days or less.
Go for a big down payment. Making a larger down payment can decrease the size of your mortgage loan. If you put down at least 20% you’ll also avoid having to pay for private mortgage insurance, but you may want to consider offering more, said Lee.
Start the process early. Get pre-approved by a mortgage lender before shopping, which shows sellers you’re serious about buying a home. If possible, ask your lender if you can start the underwriting process, which is the process of approving your mortgage, early. Underwriting is one of the longest steps in the home-buying process, and sellers may be more willing to sell their home to someone who’s one step closer to being approved.
Consider a less competitive market. While the national real estate market is tight, some areas are hotter than others. If location isn’t your number one concern, Evangelou recommends looking in a more affordable and less competitive area.