Buying a home at today’s low interest rate and in a competitive market: what you need to know

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The pandemic has shaken the real estate market and pushed many potential buyers away from homeownership as they struggle to afford rising costs.

This unprecedented seller’s market is the result of a multitude of economic factors, including Federal Reserve record interest rate, a lack of houses for sale and a slowdown in new housing construction due to labor shortage and rising costs of building materials.

As a result, real estate prices have skyrocketed. In the fourth quarter of 2019, the average selling price of a home was $ 384,600, according to the Federal Reserve of Saint-Louis. In the second quarter of 2021, it stood at $ 434,200, an effective increase of 12% in the space of six quarters. For context, the previous six-quarter period saw a mere 2% increase in the sale price.

The higher prices have left many hopes of one day becoming homeowners. But there is a very good possibility that house prices will stabilize. And there are still plenty of ways to save for your dream home while you wait.

Here’s what you need to know if you’re thinking about buying a home in the near future.

Interest rates can rise at any time

Federal interest rates fell from 1.58% in February 2020 to near zero in April 2020 amid pandemic shutdowns. Melissa Cohn, executive mortgage banker at William Raveis Mortgage, says a drastic change like this could happen again and happen quickly.

It predicts that interest rates will start to rise when one or more of these scenarios occur:

  • The delta variant of Covid-19 is under control. “Once we start talking about something else, the rates will go up,” she said.
  • The federal government recognizes “full employment”. Cohn suggested that the next US Department of Labor August 2021 employment report will be a key indicator if employment numbers return to normal. At the height of the pandemic, unemployment was close to 15%. The July 2021 unemployment rate was 5.4%, and Cohn suggested that 4% could be the key number the Federal Reserve looks for when considering raising interest rates.
  • Employees are starting to work from their desks again. As more companies announce extended remote work policies due to the delta variant, Americans are more inclined to continue shopping at home, and they are willing to pay more for home than they are. they want. Once employees return to duty, Cohn suggests the housing market will cool as there will be less demand. With less demand, mortgage interest rates will likely increase.

While record interest rates have been attractive to many Americans looking to take out a mortgage, some real estate investors argue that consumers should be careful because real estate prices always fluctuate with interest rates.

Salvatore Rich, 27, of Phoenix, has purchased a principal home and several investment properties in recent years in Arizona and Tennessee. Its home buying strategy focuses on value and desirability, rather than fluctuating prices and interest rates. “You’ll never catch the top or the bottom,” he says.

Mortgage forbearance, eviction bans end soon

There could be a “trickle down” from new homes coming onto the market soon, Cohn says.

In June, the Federal Housing Finance Agency (FHFA) prolonged mortgage abstention on homes with federally guaranteed mortgages until September 30, 2021. This is the third extension of this program, and it is not clear whether this will be extended again.

On August 3, the Center for Disease Control (CDC) extended the federal deportation ban until October 3, 2021. This has been extended several times, but has been challenged by numerous courts across the country, questioning its legal basis. On August 13, a Federal appeals court refused to block new moratorium on evictions enacted by the Biden administration, which will likely go to the Supreme Court.

With these policies possibly ending in the next few months, Cohn predicts that a number of properties, both rental and purchase, will hit the market, pushing home prices down.

Pandemic supply chain issues freeze new home construction

The pandemic is affecting more than interest rates – it is pushing home construction prices to record highs.

According to U.S. Census Construction Price Index, house construction prices increased 13% from June 2019 to June 2021 for single-family homes. This takes into consideration the total cost of the construction, including the value of the land.

Building material costs also climbed 26.1% on average from June 2020 to June 2021, according to the National Association of Home Builders. This also does not take into account the labor shortage in the building industry, further limiting the development of new homes.

And the semiconductor shortage that has crippled the car supply chain has also caused problems in the homebuilding market. Home appliances, including refrigerators and stoves, have been out of stock for several months due to the shortage of chips. the lack of devices is the cause of a delay in sales of homes or incomplete homes for sale, further reducing the supply of homes.

What you can do to be better prepared for buying a home

Although the housing market is extremely competitive and there is still a lot of uncertainty about the future, there are several steps you can take to prepare for a future home purchase.

  • Set a budget to make sure homeownership is within your reach.
  • Save for a down payment by using a high yield savings account so you can earn additional interest on top of your initial deposit. Select rated on American Express® High Yield Savings Account as our first choice for the best accounts at a major bank thanks to its higher than average interest rate and 24/7 customer support.
  • Make sure your credit score is as high as possible before you apply for a mortgage. The higher your credit rating, the better the terms you can get on your mortgage (including a lower interest rate). You can use a credit monitoring service to better understand your credit score. Select rated Capital One’s CreditWise® the best overall credit monitoring service. You don’t need to be a Capital One cardholder to use the service, and users regularly receive up-to-date credit scores and updates from the top three credit unions.
  • Get pre-approved for a mortgage before you start your home search. By doing this, you will know exactly how much you are able to spend and you will be able to see how much your monthly payments will be.

Home shopping can be a stressful experience, especially in today’s competitive environment, which often features multiple bidders for a home in the days after it goes to market. Cohn suggests keeping it simple and “finding a house that will suit your needs”.

American Express National Bank is a member of the FDIC.

Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.

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