Is it a good time to buy a house?

More than a year into the COVID-19 pandemic, mortgage rates continue to hover around historic lows which, along with a scarcity of properties and pressure from a spurring millennial class looking to relocate, has caused a massive surge in mortgage applications, propelling home sales to a record 14-year high.

The question remains: is now the time to buy?

Mortgage rates will continue to oscillate between historic lows, but experts predict rates will begin to increase gradually later in year. Lower rates have also led to an increase in mortgage applications, and some lenders have tightened their applications in order to get a hold on things.

The current rise in home prices is likely to go down at some point, making the waiting game a better strategy for someone who isn’t necessarily in need of a new home right now.

If you’re in the market right now, expect fierce competition from other buyers and a stifling inventory that fails to compensate for the incredible demand we’re seeing. However, if you can afford some time, this can be an especially productive time to get your affairs in order prior to beginning the home-buying process.

Mortgages 101

The two most common types of mortgages are 30 and 15-year fixed-rate mortgages. With these types of loans, your interest and monthly payments will remain the same throughout the entirety of the loan.

For new homebuyers, the main difference between the two is lower rates for 15-year and lower monthly payments for 30-year loans.

Aside from the two above-mentioned loans, aspiring homeowners can also choose an adjustable-rate mortgage, which fixes your interest and monthly payments during the first few years of the loan, after which the rates will reset at specific intervals, according to the market.

The main advantage of ARMs is that they are considerably cheaper than fixed-rate mortgages, at least for the first few years of the loan, but they can also prove a double-edged sword should interest rates rise during the life of the loan.

Current Mortgage Rates—Where are we headed?

Mortgage rates sunk deep during 2020, igniting a wave of refinance activity and purchases throughout the country. As a result, many people were able to afford homes that were slightly out of budget prior to the low rates.

Beginning in January 2021, rates have started to trend higher week-over-week compared to last year, but experts estimate that the change will be modest if not small, and that we should expect to see it happen over time.

Increased vaccination efforts and government relief packages could even spur more positive activity and lower rates. Even with rising rates, now will still be an advantageous time to refinance or purchase a new home for those who have the willpower and the budget to bid out other buyers.

Factors that Influence Rates

There are a number of economic factors that govern the way mortgage rates fluctuate up and down.

1. The Federal Reserve: also known as the “Fed”, the government entity took swift action when the pandemic started and announced plans to keep money moving through the economy by dropping the short-term Federal Fund interest rate to between 0% - 0.25%.

2. The 10-year Treasury note: mortgage rates move in unison with the yields on the government’s 10-year Treasury notes. Yields dropped below 1% for the first time in March 2020 and have been slowly rising ever since.

3. The broader economic apparatus: Unemployment rates and changes to gross domestic product are also important indicators of the overall economy status. When the pandemic started, unemployment rates were up and have yet to recover fully, while GDP also took a hit and has recovered partially.

There is no universal mortgage rate for everyone. Many different factors in the current market and your personal financial situation will determine your outcome but taking ample time to choose the right lender will help you the most in achieving your desired payments.