The spring homebuying season is here, and the trends that prevailed throughout 2020 remain in place to keep the housing market ultra-competitive.
Limited housing supply and low (but rising) mortgage rates are driving up property prices and competition as more and more buyers compete for the small number of available homes.
Here’s what those trends will look like in action for buyers hoping to close on real estate in the coming months.
Not enough homes to meet demand
The U.S. housing market is short about 3 million available homes, according to the National Association of Realtors. It could take a number of years for new construction and existing home sales to catch up, so the low supply is going to be a prevailing trend for some time.
Frank Nothaft, chief economist at CoreLogic, said that there is some reason for optimism this spring, however. As more people get vaccinated, a backlog of baby boomers who stayed put during the pandemic may move forward with retirement or relocation plans, which could ease the squeeze slightly.
“The median age of owner-occupant homeowners is 58,” Nothaft said. “I think what we will see emerge a little bit in the spring but especially in the second half of this year” is those baby boomers who were vaccinated listing their homes for sale.
Even so, the market is going to remain noticeably tight this spring. Realtors across the country have reported multiple offers on nearly every listing for months already, so prospective buyers should brace themselves for stiff competition.
Limited supply combined with low mortgage rates “has led to really eye-popping house price gains,” Nothaft said. “I expect that to continue.”
Mortgage rates will continue their gradual climb
Although rates are climbing, they’re still extremely low by historical standards, so the higher rates aren’t expected to have a huge impact on mortgage affordability for now.
“I do expect that we’re going to continue to see gradual upward pressure,” Nothaft said. “I don’t think we’re going to see mortgage rates get back to 3.5 or 4 percent until next year,” he added. “It’s not as good as it was the first week of January, but they’re still really, really low.”
Even so, housing affordability overall will be squeezed by the prevailing market conditions.
“I see these conditions continuing, a tight housing market favoring sellers rather than buyers,” Nothaft said. “A market that’s characterized by low mortgage rates, availability of credit, but not good availability of houses.”
Less-dense neighborhoods will remain popular
Throughout 2020, moving trends showed that most people left the densest parts of metropolitan areas for places nearby where they could afford a little extra space.
Bankrate analyzed United States Postal Service mail forwarding data, which showed that the most common moves last year stuck to this trend. As remote work arrangements continue to stretch in 2021 and beyond, housing tastes are changing for many prospective buyers.
“This shift from high-density areas to low density areas, from high-density residential structures to low-density residential structures,” Nothaft said, “I think those trends will continue in 2021. We’ll see them play out in the spring market and throughout the year.”
Advice for homebuyers and sellers
The competitive market means sellers are in luck because they’ll be able to command top dollar for their properties, and buyers will need to be especially savvy to close the deal.
“For buyers it’s really important, especially in this type of environment, to do your homework, no pun intended,” Nothaft said. “Make sure your financial house is in order, you’ve taken the right steps to know what you can afford” and have saved enough for down payment and closing costs and have gotten preapproved for a mortgage.
He added that this spring it will be especially important to work with a knowledgeable Realtor who can guide you through the competition.
“The reason to be prepared is what we’re seeing in the market right now is, when a home comes on the market, often it’s not on the market long at all,” Nothaft said. “It gets sold quickly, days on market has really shrunk.”
Also, he said, understanding what you want from a home and researching the community where you plan to buy can help guide your search.
For sellers, the favorable market means your sale shouldn’t be too difficult, but it will still help to work with an agent who will know how to price your home and vet multiple offers.
This spring promises to be an especially chaotic season for homebuyers as mortgage rates rise, housing supply remains low and real estate tastes are in the middle of a major shift.
Being prepared for the competition will help make things smoother and get buyers across the closing finish line more smoothly and quickly.