With home prices on the rise, is this a good time to buy?May 26, 2021 | By Dara Giddings
Home prices have been rising for some time but have skyrocketed over the past year. “The median selling price for a home is up $35,000 compared to a year ago, which is the fastest-paced increase since 2006”, said Vishwanath Tirupattur, a Morgan Stanley strategist wrote in a note to clients this week. This rapid increase may have many concerned that our housing market is on the verge of another bubble, as we experienced in the 2008 Housing Crisis. The good news is that market experts agree this is not a bubble, it’s a lack of supply. Today’s homeowners have a large amount of equity in their homes, which is a stark contrast to the previous real estate recession.
Likely due to the pandemic, the 2021 housing market has a low inventory. According to NAR data, at the end of March there were 1.07 million homes available for sale. In comparison, during the housing bubble in July 2007, there were 4 million homes available for sale. This is especially good for buyers because mortgage interest rates are staying low. Both the 30- year and 15-year mortgage rates have averaged below 3% for the past week and most economists are not predicting significant increases-at least in the short term.
The low-rate environment is an advantage to those looking to buy a home at a time when home prices are being pressured higher by strong demand and a lack of supply in the market, but it won’t last forever. “While I don’t expect double-digit mortgage rates any time soon, I do expect mortgage rates to follow Treasury yields higher as the combination of abundant supply and concerns about inflation mean that investors expect higher returns,” said Danielle Hale, chief economist at Realtor.com.
And while home prices are not expecting to keep growing at such an accelerated pace, they are not expected to fall either. The low interest rates enable buyers to afford much more home and help to offset the increased prices in this Seller’s Market. Whenever rates do rise it will be more difficult to afford the same home that buyers could purchase today. This, combined with the speculative nature of predicting future home prices, suggests that now may still be a good time to purchase a home.