Should I Buy a House in 2020?

Buying a house is an important decision and major investment. It’s also a step toward the American dream. Like many Americans, our heroes can be hesitant to make the leap. Many heroes often ask, “Should I buy a house in 2020?” or “When is the best time to buy a house”? It’s a great question. It’s an important question. There are many advantages to becoming a homeowner. But, if your circumstances are questionable, then it might not be the best time to buy a house. Here are some historical trends and key housing market indicators for 2020 to consider before you decide to buy a home.

Look at Housing Market Key Indicators

One of the best ways to decide if you should buy a house is to look at the real estate market in your local area and try to determine if existing conditions work for your situation. Here are some national key indicators and trends to note, courtesy of the National Association of Realtors and their recent market trend post.

Home Inventory Levels

The old rule of “supply and demand” applies to the housing market. When there are fewer houses for sale (low inventory), house prices typically increase, because there are more buyers than houses for sale. When the inventory number of homes for sale is high, home prices typically drop because there are more houses available than buyers.

How does this help answer the question, “Should I buy a house in 2020?” The past two years were a competitive market for home buyers. Due to low inventory levels, many potential home buyers would end up in bidding battles because there were more home buyers than houses for sale. As you can see the trend line below, 2020 inventory levels started the year low. The number of new homes for sale was down 45 percent year-over-year in April 2020 reported Forbes Contributor, Ellen Paris. Only in May has inventory levels increased slightly. One positive for first-time home buyers is real estate investors are laying low to see what happens with the market and the 2020 election. This loosens inventory up a bit for first-time home buyers to take advantage. The inventory forecast for 2020 is uncertain given the effects of these uncertain times. But, if you’re able to wait for the home you want, and you’re ready to duke it out when that home becomes available, now is a great time to take advantage of record low mortgage interest rates!

Home Pricing History

Housing prices have been rising steadily the last few years, and it has continued in 2020. May 2020 marked 99 straight months of national price gains. The national median-existing home price is expected to remain the same, with a potential slight increase toward the end of 2020, according to the National Association of Realtors® Confidence Index Survey. If purchasing a home is something you’re seriously considering, this might be the best time to buy a house to avoid potentially paying more as prices continue to rise. Yes, continue to do your research. But, we recommend you speak with our local real estate and mortgage specialists and get the best answers to your questions. They will also explain how you can save money when you buy a home with Homes for Heroes.

Number of Days On the Market

The number of days the average home stays on the market can help determine if you’re in a hot or cool market. The longer a home stays on the market, the better it is for buyers. Sellers are more likely to reduce the price or accept an offer below asking price when the home takes longer to sell. The average amount of time homes spend on the market has been dropping since 2010. In May, the average home was on the market for 26 days, and nearly 60 percent sold in less than a month. Home buyers, especially first-time home buyers, will need their ducks in a row to act fast on the home they want. As mentioned earlier, be prepared to negotiate for the house you want and know your limits.

Market Seasonality

Here’s where things get tricky. All the key indicators we’ve discussed so far are following general year-over-year trends. But the housing market fluctuates greatly depending on what time of year it is. Spring is the busiest home-buying season so it may not be the best time to buy a house. This is when inventory and prices peak, and average days on the market decreases. This is the most competitive time of year for home buyers. Things slow down in the fall and winter months. Depending on your goals and timeline, the back half of the year could be the best time to buy a house for you.

Interest Rates

The interest rate is a big topic of conversation this year, and probably one you’ve kept top of mind when asking, “Should I buy a house?” Due to the unprecedented global events in 2020, interest rates are the lowest they’ve been in 50 years. In May this year, the average 30-year fixed-rate mortgage was 3.2%. This is great news for home buyers. According to the National Realtor Association (NAR), “The estimated monthly mortgage payment on a home purchased at the median price of $286,800 with a 10% downpayment on a 30-year fixed loan was $1,131, just $90 more than the median rent of 1,041 (as of 2020 Q1).” This could be the best time to buy a house for this reason alone!

However, due to these crazy times of economic ups and downs and unfortunately high levels of unemployment, it is tougher to get a mortgage. Mortgage lenders are less likely to take a risk on a home buyer if they do not meet certain financial criteria. This is why we ask heroes like you (firefighters, EMS, law enforcement, active and veteran military members, healthcare professionals and teachers) to register on our website to speak with your local Homes for Heroes real estate and mortgage specialists and find out how to get the home you want and save money in the process.

Renting vs Buying a House

If you’re not a current homeowner you may be asking yourself, “Should I buy a house or rent?”. In addition to the national trends, you will need to understand your own financial situation to determine the best time to buy a house. Consider these factors as you make your decision:

How is Your Credit?

For most potential buyers, federal interest rates don’t matter nearly as much as their credit history. That’s because the mortgage loan interest rate you get from a bank is largely determined by your credit score. People with lower credit scores typically pay higher interest rates. The difference in rates can add hundreds of dollars to your monthly mortgage payment. The smart way to go is to improve your credit score.

If you haven’t checked your credit lately, you may want to take a look at it. Every American is entitled to one free annual credit report from each of the three major credit bureaus. To get your report, go to www.AnnualCreditReport.com. But note, these reports will not contain your actual score. For that, you may need to pay a small fee. Many banks and credit card companies also offer credit score checks to their customers for free, so check to see if this service is available to you before paying for your score.

FICO scores (the most commonly used credit scores) range from 300 to 850. If yours is 670 or above, you’ll qualify for a better interest rate on a loan. If your score is less than 670, here are some ways to improve it:

• • Pay down your credit card bills to within 10 percent of your limit. If your card’s limit is $1,000, your balance should be no more than $100. Doing this will increase your score almost immediately.
  • Make all of your payments on time. One late payment can drop your score up to 100 points, but on-time payments will raise it.
  • Check your credit report for errors. If negative information exists and you don’t recognize the account or the charge, dispute it.
  • Never close a credit account. Even if you don’t use it, keep it open. Closing an account can negatively impact your score.
  • If you have an account in default, request a “pay for deletion.” It’s an agreement made with your creditors that you’ll pay a debt in full or an agreed-upon amount in exchange for them deleting the negative information on your credit report. Simply paying off your debt will not raise your score unless the creditor deletes it from your record.

How is Your Income?

Most financial experts agree that your housing costs should total no more than 30 percent of your income. Ask yourself, “Can I find an affordable home based on what I’m earning now?” Also, look at your debt-to-income ratio. If you’ve got a high amount of debt and a relatively low income, it will be more difficult to get a home loan. Paying down your debt before applying for a mortgage can make things easier.

Do You Have Enough for a Down Payment?

Experts recommend putting down 20 percent or more when you buy a house, and there are a few reasons why. For starters, if you put less than 20 percent down, you’ll have to pay private mortgage insurance (PMI). On a $300,000 loan, that could cost you an extra $250 every month. Another reason to make a larger down payment is to protect yourself in the event that you have to move shortly after you buy the home. With a small or nonexistent down payment, you might find yourself underwater, owing more than you can sell the home for, if housing prices fluctuate. This is particularly important for heroes who work in professions where being transferred is a real possibility.

Do You Have Enough for Closing Costs?

In addition to a down payment, you’ll also need money for closing costs. Experts say you can expect to pay around 2 to 5 percent of the value of the property. So, on a $300,000 house, you’ll pay between $6,000 – $15,000 in closing costs. Working with Homes for Heroes specialists can often help save on some of your closing costs.

Your down payment and closing costs make up two of the four other costs of buying a house you will need to consider.

Should You Buy a House in 2020?

This is a lot to take in. Hopefully we provided some good information to help answer that question you’ve been asking yourself, “Should I buy a house in 2020?” Remember, not every market is the same. Just because certain trends are happening nationally doesn’t mean those same conditions are affecting the community where you want to buy a house.

So if you’re ready to buy, or simply want questions answered, register with Homes for Heroes. There’s no obligation. We’ll connect you with our real estate and mortgage specialist in your area who can give you accurate information about the community where you want to buy a house, and how your financial situation stacks up to make it happen. Heroes who use our real estate and mortgage specialists save an average of $2,400 when they buy a home. So, whether it’s in 2020 or somewhere down the line, Homes for Heroes wants to help you buy a house and save money in the process.