Few would argue that 2020 has been one of the most unusual years in recent memory. Much of the world shut down as public health agencies attempted to stop the spread of the novel coronavirus. Additionally, many governments provided economic stimulus to their citizens as an incentive to stay home. In addition to direct cash payments, the United States government also provided eviction and foreclosure relief through the end of 2020. This helped to keep the housing market afloat for much of the year. However, 2021 might see a much different housing market. For those who are prepared, the next year might provide a great opportunity to get into a new home.
When COVID-19 started its rampage across the globe, one of the first steps the Federal Reserve took was a quick interest rate cut. Two weeks later, an emergency meeting of the Fed led to another cut. Effectively, governmental borrowing rates in the US have been near 0% since March. This means that borrowing money is cheap. While the interest rate set by the Federal Reserve is not the only factor that impacts mortgage rates, there is a strong correlation. As 2020 moved into summer and fall, mortgage rates for 30-year loans dropped to records below 3%. Those who are in the market for a house should be able to snag these low-interest rates as long as they are in good financial shape.
Because the economic stimulus package provided rent and mortgage forbearance and increased unemployment benefits, many who would have lost their homes during previous economic downturns have protection through the end of 2020. Those who are unable to pay their mortgages or rent after December 31 will be subject to eviction or foreclosure after that date. An increase in foreclosures would likely drive prices down in communities that experience economic distress. With foreclosures on the market at a discounted price, those who are ready to buy a home could find many opportunities with extremely low borrowing costs.
While no one wants to see economic recessions and the dislocation they cause, those who are prepared to purchase a home could find some good deals in 2021. Such low rates combined with a soft market come around very rarely. Those who buy assets like homes near the bottom of the market can also benefit from future appreciation. This means that 2021 could be a great year to buy a home.