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With the way things are forecast to go in the housing market in 2021, buyers might be feeling a little overwhelmed. Home sales are predicted to increase by 21.9% with home values expected to rise 10.5% by December 2021, according to a recent Zillow report.

However, while some buyers may think it wise to wait for the market to cool, Zillow’s data shows they may benefit more from simply diving in—of course, if they are financially prepared to do so—as the possibility of rising mortgage rates could bring affordability challenges in the future. Additionally, if the persistent inventory shortage keeps up, this will continue pushing home prices even higher. And with moving trends’ seismic shift due to the ongoing coronavirus pandemic, areas that were once affordable are seeing increased activity and increased home values.

An example, Zillow reports that today’s average mortgage rate is 2.68% for a 30-year fixed loan. With a 20% down payment, that means it would cost a typical U.S. buyer about $861 per month, plus taxes and insurance, to purchase a home. However, if home values rise 8% and interest rates climb to 3%, that same house would cost buyers $969 per month. And with a 12% spike in home values, the scenario would be monthly payments of $1,005.

“The best time to buy a home should always be when it’s the right time for your family. However, home shoppers would be wise to gather as much information as possible and use it to make smart decisions that maximize their buying power,” said Zillow home trends expert Amanda Pendleton. “For someone ready to buy, jumping in sooner rather than later could mean a savings of hundreds of dollars a month. Or, more likely, it could mean having to make fewer tradeoffs to stay within budget.”

The same goes for refinancing, said Zillow. Right now, those refinancing on a typical U.S. home loan would pay $861 per month, but if rates increase 3%, that would tack on $36 per month. And if rates increased to 3.5%, monthly payments would rise to $956.

“Rates are near historic lows, and we expect rates to hover near current levels through the first quarter of 2021. Although we expect rates to slightly increase as the economy recovers from COVID-19, it remains to be seen when that recovery truly gains traction. While these rate fluctuations may seem like small changes, when homeowners do the math, it is clear how lower rates can significantly reduce monthly payments for the life of the mortgage,” said Zillow Senior Economist Chris Glynn. “Like with any consumer decision, it is important to be informed, research the market and shop around to find the best deal possible. Qualified mortgage professionals can help individual consumers identify the loan rate, repayment term and structure that meet their needs.”

Here’s the market scenario for those considering taking the leap:

– According to Freddie Mac, mortgage rates remained flat compared to the previous week, with the 30-year fixed-rate mortgage averaging 2.73%.

– The markets are bustling. According to the National Association of REALTORS®’s Pending Home Sales Index, pending transactions may have dipped slightly (0.3%) in December, but YoY, they are up 21.4%.

Realtor.com® reports that housing inventory in the 50 largest U.S. metros declined by 41.8% YoY in January.

As for the future? NAR Chief Economist Lawrence Yun expects strong home sales momentum, with sales up roughly 8 to 12% in 2021 vs. 2020, as well as prices rising more moderately, about 4% nationwide.

Liz Dominguez is RISMedia’s senior online editor. Email her your real estate news ideas to
ldominguez@rismedia.com.

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