January 20, 2021
SO – what happens next? We start off 2021 filled with high hopes for a much happier and healthier year than the one we left behind. There also is plenty of speculation about what will happen going forward in what has been a sizzling hot residential housing market.
For starters, let’s look at what some of the best minds in real estate have to say:
- Interest rates will stay low and steady. No one anticipates a jump this year, although there may be a slight increase by the time 2021 is fading into 2022.
- Home sales will increase again this year.
- Housing starts are up but will not meet the demand.
- Home prices will continue to inch up.
Notice I said “inch up” – not “jump up.”
When I am meeting with clients or just talking real estate in general, there seems to be a consensus that home prices have skyrocketed. Not to burst anyone’s bubble, but this is NOT the case. In Bergen County over the past year, prices have ranged from a DROP of 1% in some places to an increase of 8% in others – and everything in between. This means that, on average, a home that was worth $500,000 in January of last year is now worth maybe $525,000 – not $600,000 or $700,000.
That being said, first-time buyers will have a harder time purchasing a home at the end of 2021 than they do today. Why? Because a small increase in prices, coupled with a slight increase in interest rates, can make a big difference.
Nationally, predictions are that home prices will increase between 2% and 6% and that interest rates will increase to the low 3% range. With the increase in mortgage rates and the increase in price, it will cost a buyer almost $200 more a month at the end of the year to own the same $300,000 home. And you can see what this adds up to over the life of a 30-year loan in the chart below:
The bigger the price tag for the home, the bigger the payment gulf. (Here in Bergen, average home prices are closer to $500,000.)
The bottom line? if you’re thinking about buying a home this year, think harder NOW.
Remember: “You don’t live in the price, you live in the payment.”