Real Estate Trend #1: Slim Pickings for Home Buyers

For perspective, inventory was down nearly 30% in the early months of 2021 compared to the previous year. There just weren’t enough houses for sale over the year to meet buyer demand.

What Slim Pickings Mean for Buyers

Low inventory means you need to be on your toes when you go house hunting—the best homes will likely be snatched up fast. At the start of spring 2021, most homes sold around 20 days faster compared to the past several springs.3 That doesn’t leave much time to hem and haw over your home search. If you want to find a good home in this slim market, here’s some advice:

  Sacrifice some wants. If you can’t find the house you want, be willing to give up some “nice-to-haves” for your “must-haves.” Find the least expensive home in the best neighborhood you can afford and upgrade over time.

  Expand your search. What if the location where you’re planning to buy is too competitive? You might be surprised at the gem you can find in a less popular neighborhood. Working with a real estate agent who really knows the area is the best way to find a home that fits your budget and lifestyle.

  Get preapproved ASAP. Getting preapproved for a mortgage before you go house hunting is a must in any market. But in a market with such a limited home supply, not doing this legwork ahead of time gives a preapproved buyer free reign to swipe the home you want right out of your hands.

What Slim Pickings Mean for Sellers

Low inventory means low selling competition! You can probably expect to see offer letters flooding your mailbox the same way Hogwarts sent Harry Potter his acceptance letters. Since your home will be one of the (relatively) few listed on the market, you could be in the driver’s seat. So enjoy possibly picking the best offer and moving at a pace that best suits your timeline.

But after your home is sold, you probably won’t be in the driver’s seat anymore (if you’re buying again). So decide on plans for your next home before you sell.

Real Estate Trend #2: Home Prices Are Still Rising

Next up: home price trends. In the early months of 2021, home prices grew by nearly 20% compared to last year—rising to a national median of $300,000–400,000!4 Sellers, this should put a big smile on your face! And hang tight, buyers—we have some advice for you too.

What Higher Prices Mean for Buyers

If you’re going to buy a home in this expensive market, you absolutely must find out how much house you can really afford. Commit to staying within that budget amount no matter how much pressure you feel watching competitors pluck good homes off the market.

To feel confident about buying a home this year, follow these tips:

  Limit your house payment to no more than 25% of your monthly take-home pay. This payment includes principal, interest, property taxes, homeowner’s insurance and, if your down payment is lower than 20%, private mortgage insurance (PMI). Plus, don’t forget to consider homeowner’s association (HOA) fees when preparing your budget.

  Save at least a 10–20% down payment. A 20% or more down payment helps you avoid PMI—an extra fee added to your mortgage to protect your lender (not you) in case you don’t make payments. Anything less than 10% will drown you in extra interest and fees. Saving a big down payment like this is possible! If you stay patient and motivated, you can save for a five-figure down payment by this time next year.

  Choose a 15-year fixed-rate conventional mortgage. The overall lowest cost home loan is a 15-year fixed-rate mortgage. Rip-off mortgages like the 30-year mortgage, FHA, VA, USDA, and adjustable-rate ones will charge you so much extra in interest and fees and keep you in debt for decades. No thanks.

Now crunch the numbers yourself with our mortgage calculator and figure out a monthly payment your budget can handle. And then work with an expert agent to find houses for sale within that budget.

What Higher Prices Mean for Sellers

A nice profit may be on the horizon! And that’s great news because you’ll really want that extra money when buying your next home. To get the best offer for your home, work with an experienced real estate agent who really knows your local market.

And be sure to wait for the right offer. Some buyers may try to gut punch you with a low number. If you aren’t in a hurry to move, wait for an offer that gives you the most profit. Remember, the less desperate person always has the upper hand when negotiating.

Real Estate Trend #3: Mortgage Interest Rates Are Still Super Low

What Lower Rates Mean for Buyers

Sure, interest rates are low right now—which can help with affordability. Just be careful not to let that pressure you into buying a house when you aren’t really ready. A super low interest rate on a house you can’t afford is still a bad deal. So remember to stick to our advice on monthly payment limit, down payment amount and mortgage type (see Trend #2) and you’ll be in great shape!

What Lower Rates Mean for Sellers

If interest rates stay low, buyers will be more motivated to buy your home sooner than later. But if interest rates do start to increase later in the year, just plan for your house to be on the market a little longer. If you don’t plan on moving anytime soon, you might still be able to take advantage of these super low interest rates and shorten your payment schedule by refinancing your mortgage.

Real Estate Trend #4: Online Real Estate Services Are Growing

No doubt you’ve heard of real estate services like Zillow that allow you to browse or list homes for sale online with the click of a button. But did you know that online services are now offering to buy and sell your house for you?

Third-Party Buyers

Here’s how it works: You tell companies like Zillow or Opendoor about the house you want to sell. They buy it from you, pump some money into it to resell at a higher price, handle all the home processing stuff like inspections, repairs, and home showings, and then charge you pretty much the same as an agent commission for selling costs—plus, some of these companies include an additional service fee (icing on their cake). They promise less hassle, but it may mean less profit for you than working with a top-notch agent who could sell your home for more money.

Using a “Virtual” Agent

Hybrid services like Redfin aim to reduce traditional agent commissions by handling things online. This gives you partial services that are similar to working with an agent, but for a fraction of the cost. Think of it as a middle ground between selling with an agent and selling by yourself. But when selling a home, be wary of the middle ground. Your home is your biggest asset, and you get what you pay for!

Mobile or Online Closings

In related news, digital technology is also making it easier to handle document-based tasks virtually. For example, many home transactions are using electronic signature apps and remote online notarization to streamline the process.7 In other words, there’s a chance you can buy or sell a house this year without getting out of your car or ever changing out of your bathrobe and slippers.

Real Estate Trend #5: Risky Buying Options Are More Accessible

Rent-to-Own

First, if you’re itching to buy a home but can’t quite afford it yet, some sellers like Divvy offer a rent-to-own agreement. In this deal, you agree to rent the home for a specific amount of time (could be several months to several years) before becoming the owner. The plus side of rent-to-own is that it allows you to bypass the time it takes to save for a down payment and get into a house fast. Also, it means you don’t have to qualify for a mortgage right away.

The downside of rent-to-own is that it makes your rent more expensive because some of your monthly payment will go toward future homeownership. But if you later decide you don’t want to buy the house or something breaks your contract, all those extra payments will have been a waste. Plus, you may be required to handle repairs and maintenance yourself even while renting! This option leaves you in a very vulnerable place financially.

Bottom line: If you feel like you can’t afford homeownership, it’s best to wait until your financial ducks are in a row.

Loans for Down Payments

Another risky buying option to avoid is taking out a personal loan to fund a down payment. Purchasing a home with no money down is never a good idea. Remember, you want at least a 10–20% down payment. Buying a house with anything less will rob you of your other financial goals by having you pay too much extra in interest and fees. Thankfully, not many mortgage lenders allow you to do this—plus, it can even hinder your ability to qualify for the amount of mortgage you need.