Who should buy a house in 2021, and who should wait?

July 12, 2021 - 6 min read

Should I buy a house now?

It’s no secret that the housing market is hot right now. Still, that hasn’t stopped homebuyers.

Despite rising home prices, low supply, and near-constant bidding wars, Americans are buying homes in record numbers. According to the National Association of Realtors, more homes were bought in 2020 than any year since 2006.

Should you follow suit and buy that dream home now? Or does it make sense to wait until the market has cooled off? Let’s dive in.

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>Related: How to buy a house with $0 down: First-time home buyer

Pros of buying a house in 2021

It might seem like today’s housing market is all bad news: rising prices, falling affordability, and so on. But there are definitely some perks to buying a house right now.

Low interest rates boost affordability

For one, mortgage rates are low. According to Freddie Mac, interest rates on 30-year loans averaged 2.96% in May 2021. Just two years ago? That average was well over 4%.

Economists expect rates to keep rising this year and next. They could go above 3.25% or even 3.5% by the end of the year.

Say you buy a home worth $400,000. With a 20 percent down payment ($80,000), you have a mortgage loan amount of $320,000.

Here’s how your savings might compare at today’s low mortgage rates versus forecasted rates for late 2021:

Loan Amount$320,000$320,000
30-Year Fixed Rate12.96%3.50%
Monthly Mortgage Payment$1,340$1,440
Total Interest Paid (30 Years)$163,200$197,300

1Interest rates are for sample purposes only. Your own mortgage rate will be different

The result is a more affordable monthly payment, fewer long-term interest costs, and a bigger home buying budget (or, often, all three).

Rising home values create equity

Buying right now also allows you to take advantage of record-breaking home price growth.

Prices have risen over 15% in the last year, giving homeowners — even newly minted ones — serious profits when they decide to sell. Buying now would give you a chance to capitalize on this growth and really build up your equity fast.

There are plenty of mortgage options

Today’s buyers can choose from a wide range of no- and low-down-payment mortgage options to make home buying more affordable.

Yes, you may have to pay private mortgage insurance (PMI) if you put less than 20 percent down. But that’s not always a bad thing.

Putting less money down can help you buy sooner and benefit from rising home values — rather than waiting to save 20 percent and chasing higher purchase prices later on.

And, it lets you save more of your money for closing costs, home repairs, emergency funds, and other expenses that are sure to come up for a new homeowner.

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Cons of buying a house in 2021

The drawbacks to buying a house in today’s market are numerous.

Low inventory

Inventory is extremely low, which means slim pickings and a very high rate of bidding wars. This drives up home prices and makes buying a house — not to mention affording one — even more difficult.

In a seller’s market like this one, it’s common for bidders to go above asking price. And you may have to do the same if you’re hoping to secure a new home this year.

Competition from cash buyers

On top of this, there’s also a serious uptick in cash buyers to worry about.

These can be quite tempting for home sellers, offering a sure-fire sale, a quick closing, and other handy perks — especially when compared to mortgaged offers.

Unfortunately, according to ATTOM Data Solutions, cash offers account for over a quarter of all home purchases these days.

But that doesn’t mean mortgage borrowers are out of luck. There are multiple strategies you can use to compete with a cash offer. At the end of the day, the vast majority of buyers still use a home loan — and so can you.

Tougher mortgage standards

Mortgage lenders raised the bar for home buyers during the coronavirus pandemic.

Due to increased financial risks, lenders wanted to see higher credit scores, bigger down payments, and often substantial cash reserves in order to qualify for a mortgage loan. This made it tougher for many first-time home buyers to secure a home loan.

Those standards are beginning to loosen back up as the pandemic wanes. But mortgage still aren’t as easy to come by as they were in early 2020.

On top of that, some sellers are less likely to accept FHA and VA loans these days. So if you plan to use this type of financing, get a rock-solid real estate agent and loan officer on your side to help make sure the deal goes through.

Is it cheaper to buy a house or rent?

Buying a home right now isn’t the right choice for everyone. In many parts of the U.S., renting a home is actually more affordable than buying one.

On average, the cost gap between buying and renting is about $600 per month, according to a recent study. In some markets, it’s as high as $1,200.

Moreover, home prices are rising faster, too.

While rents are starting to recover after dropping amid the pandemic, home prices have jumped over 15% in just the last year — much more than the 5% growth rate seen on single-family rental properties.

Of course, this isn’t universal.

The comparison depends on local home prices, location, and the size of the property you’re considering. So make sure you run the numbers in your market before making your decision. A good real estate agent can help here.

And keep in mind, renting does not offer a return on investment.

While higher mortgage payments make homeownership more expensive, some of that money goes back into your own pocket in the form of home equity. Renting, on the other hand, does not generate any returns for the tenant.

So rather than looking at cost alone, make sure you factor in your long-term financial goals. Will home buying help you get there?

Who should buy a house now?

Still not sure if buying a home is the right move in today’s real estate market?

The best decision really depends on your budget, your employment situation, and where you’re located.

Generally speaking, buying a house (at least right now) is best reserved for people who meet at least one of these conditions:

  • Have the budget to pay above asking price, which is often required to win a bidding war
  • Are able to pay cash for their home purchase
  • Live in an area where homebuying demand is low and prices are more manageable
  • Are working from home and have the flexibility to move to a lower-cost housing market
  • Are willing to consider distressed properties (not move-in ready ones) that may need a little more work

If you don’t fall into one of these categories and are considering buying a home, talk to your financial advisor first. They can help you make the right decision for your personal finances and budget.

Who should wait until next year?

If you’re really set on buying a home, there are ways to make it happen.

Still, it may not be the best move if you fall under one of these umbrellas:

  • You’d need to really stretch your budget to afford today’s prices
  • You’d have to buy a home that doesn’t meet your needs or would require too much sacrifice due to price
  • You can’t qualify for a good mortgage rate, which would mean paying even more for your home in the long run
  • The market you want to buy in is particularly hot or competitive, meaning it’d be very hard to find a home you can afford

In the above scenarios, you might be best waiting out the current real estate boom.

At some point, home prices will level off, and competition will dwindle. This will make it easier to both find a home and stay on budget when you do.

How to know if you should buy a house in 2021

If you’re considering buying a house in today’s crazy market, make sure to take a good, hard look at your budget, local home prices and availability, and your needs as a buyer.

If you’re not sure of the best move, consult a pro. Your financial advisor, a loan officer, a local real estate agent, or your tax advisor can all help you make the right decision for your household.

Time to make a move? Let us find the right mortgage for you

Aly J. Yale
Authored By: Aly J. Yale
The Mortgage Reports contributor
Aly J. Yale is a mortgage and real estate writer based in Houston who has contributed to Forbes and worked for organizations such as The Dallas Morning News, PBS, NBC, and Radio Disney.