Should You Wait Until 2021 to Buy a House, Under the Circumstances?

Highlights from this housing report:

  • Many buyers are wondering if they should wait until 2021 to buy a house?
  • The coronavirus pandemic and looming recession are the biggest concerns.
  • It largely depends on where you plan to buy, and how long you plan to stay.

Ever since the coronavirus outbreak took America by storm, we’ve been receiving emails from concerned home buyers and worried homeowners. We’ve answered some of these questions over the past couple of weeks.

Today, we’ll address a question that’s currently on the minds of many home buyers, as we move into what would normally be a busy home-buying season. Should I wait until 2021 to buy a house?

Should You Wait Until 2021 to Buy?

These are unusual times. Uncertainty is in the air. The road ahead is unclear. And apparently, a lot of would-be home buyers can sense that. They worry they’re about to make a mistake, buying a house in what could be the start of an economic recession.

So, should you wait until 2021 to buy a house?

That’s a tough question with a lot of big variables. But let’s tackle it anyway. There are five key points buyers should consider, before making this kind of decision. Here they are…

1. Is your employment and income situation stable?

The ongoing coronavirus crisis, and the stay-at-home orders resulting from it, have pushed the U.S. economy toward a recession. Some economists are now saying we’re already in a recession, and that it will probably get worse before it gets better.

In mid-March, Bank of America’s chief U.S. economist Michelle Meyer stated: “We are officially declaring that the economy has fallen into a recession … joining the rest of the world, and it is a deep plunge.”

Other experts have echoes this sentiment, while some say it’s too soon to declare a recession in the U.S. One thing is undeniable: The U.S. economy has slowed considerably, and it could get worse in the weeks ahead.

James Bullard, who heads up the Federal Reserve Bank of St. Louis, recently told Bloomberg that the nation’s unemployment rate could shoot up to 30% during the second quarter of 2020. That’s a sobering outlook, when you consider the jobless rate only rose to around 10% during the last recession.

Earlier today, the Labor Department announced that initial jobless claims in the U.S. soared to a record 3.28 million in the week ending on March 21. That was its highest level ever. The previous record was 695,000 claims, filed during the week ending October 2, 1982.

The U.S. unemployment rate was around 3.5% in February 2020, according to the Bureau of Labor Statistics. It is likely north of 5% at this point, and will almost certainly continue to rise in the months ahead.

Which brings us back to the question at hand: Should you wait until 2021 to buy a house?

To answer that question, you have to think about your current employment and income situation. Do you feel confident you can maintain your income, through whatever economic troubles might be brewing? If so, you can probably check this box and move on to the next question.

On the other hand, if you feel your future employment and income are vulnerable, you might be better off waiting until 2021 to buy a house. It’s rarely a good idea to take on new (and significant) debt at a time when your income is unpredictable.

Of course, if you’re paying cash for a house, this question becomes less important. But statistics show the vast majority of home buyers use mortgage loans to help finance their purchases. So this is a valid concern for a lot of people.

Related: Will coronavirus cause a recession?

2. What are home prices doing in your housing market?

Your local real estate market can also help you decide whether to buy a house now or wait until 2021. This is another area where research is warranted.

Start by considering current home-price trends in your city and the surrounding area. Have they been rising steadily over the past couple of years? If so, they could be at less risk of a downturn during a recession.

If home prices in your area have leveled or started to dip in recent months, there’s a good chance that downturn will continue as the economic turmoil drags on. In fact, the rate of decline could accelerate. In that scenario, it might be best to wait until 2021 (or at least the latter part of 2020) to buy a house.

This “wait-and-see” approach will likely become more and more common among home buyers, as the crisis continues to unfold.

Some real estate markets are more vulnerable to price erosion during an economic slowdown. This is especially true for higher-priced markets where affordability is lacking. More affordable areas, where a resident with average income can easily afford to buy, are generally less likely to experience price declines in a recession.

Related: Will home prices drop in 2020?

3. How long do you plan to stay in the home?

Economic recessions are temporary. The coronavirus pandemic is temporary. China has already made significant progress curbing the spread, though they are ahead of us in the “cycle.”

Meanwhile, vaccine development moves forward at a steady pace, with many groups trying to find a way to curb the disease.

Point being: This will eventually pass. Things will eventually get back to normal.

Our advice for home buyers is to think long-term. How long do you plan to stay in house, after purchasing? If it’s going to be for many years, you have less to worry about in terms of your real estate investment.

A shorter stay, on the other hand, could bring more risk into the picture. You’re more likely to lose money, due to declining home values, if you’re in and out in a few years.

And forget about house flipping. That’s a fool’s errand in times like these.

4. Are you planning to use a mortgage loan?

Mortgage rates sank to an all-time record low during the first week of March. They’ve come up a bit since then, but they’re still hovering below 4% (on average) for a 30-year fixed mortgage.

This is another key consideration when deciding whether to buy a home now or in 2021. Those who wait until next year to buy could encounter higher mortgage rates. After all, they can’t go much lower than where they are right now.

But of all the factors listed in this article, mortgage rates are probably the least urgent.

Based on current conditions, 30-year mortgage rates could stay below 4% (on average) for the foreseeable future. This is partly due to stimulus measures taken by the Federal Reserve, announced earlier this month.

At the end of 2019, Freddie Mac’s economic research team predicted that 30-year fixed mortgage rates would average around 3.8% throughout 2020 and into 2021.

These low rates don’t just benefit home buyers. Many homeowners are also rushing to take advantage of the situation, by refinancing their existing loans.

On March 19, Freddie Mac’s research team noted:

“Mortgage rates rose again this week as lenders increased prices to help manage skyrocketing refinance demand. This is expected to be a short-term phenomenon as lenders work through their backlog.”

The bottom line: Mortgage rates are currently hovering near an all-time historic low. And while they will certainly fluctuate up and down over the coming months, they’re expected to remain below 4% (on average) for the foreseeable future.

Based on those predictions, borrowers should be able to score a low mortgage rate when buying a home in 2021, just as they can now. So there doesn’t appear to be any need to rush in that regard.

5. Are homes being pulled off the market in your area?

There’s not much point in housing hunting if there aren’t very many houses to see. And that scenario is starting to occur in many local housing markets across the U.S., as sellers pull their homes off the market.

Tendai Kapfidze, chief economist at LendingTree, recently stated:

“People basically are not gonna go and see houses … You don’t want to be out there mixing it up with people you don’t know, for one. And two, more importantly, the people who have homes to sell, they don’t want people walking through their houses touching everything.”

Some sellers are using technology to overcome such hurdles, offering virtual 3D tours, remote document signing, and the like. Others are simply pulling out of the market and waiting for things to settle down.

These trends vary by location, as some cities are more affected by the coronavirus than others. The point is, you have to consider the very real possibility that you might only be seeing a small slice of the market. You might have more properties to choose from if you want until later in 2020, or even 2021, to buy a house.