The housing market has been starved for inventory since last year. The result? Many buyers have struggled to purchase a home and take advantage of low mortgage rates.
Inventory has been especially down for lower-priced homes. But that’s finally changing.
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More lower-cost homes are hitting the market
Redfin reports that during the second quarter of 2021, the number of active for-sale homes in the most affordable pricing tier — those with a median price of $108,000 — increased 11.3% from the previous year. When we compare that to luxury homes with a median price of $1.03 million, there’s a huge gap. The supply of luxury homes only rose 1.3% from the previous year.
Here’s how all the housing categories fared, compared to the previous year:
Why the sudden uptick in lower-cost homes? A big reason could be that homeowners are trying to unload their properties as mortgage forbearance comes to an end.
Homeowners experiencing financial hardships were allowed to put their mortgages into forbearance as part of the CARES Act, the massive coronavirus relief bill that was passed into law in March of 2020. During forbearance, borrowers can pause their payments without being considered delinquent.
Those with loans in forbearance under the CARES Act can skip payments for 18 months, so borrowers who went this route at the very start of the pandemic will soon be nearing the end of forbearance. Meanwhile, home values are up on a national level. As such, now’s a good time for borrowers who are still struggling to pay their mortgages to sell their homes for enough money to cover their loan balances in full and walk away clean.
More opportunity for buyers
The fact that there’s been a rise in inventory on the lower end of the housing market is good news for home buyers — especially first-time buyers on a budget. In fact, this shift may make it possible for more people to buy a starter home.
Starter homes are a great way to ease into homeownership. They tend to be smaller and less expensive to maintain. They also tend to have lower property taxes. It’s common for new home buyers to purchase a starter home and then upsize to a larger property down the line.
Right now, mortgage rates are sitting near historic lows, so it’s a great time to purchase a starter home. By contrast, those looking for a mid-priced property — one that could conceivably serve as a forever home — may continue to struggle due to a lack of inventory.
As the year goes on, we may see more homes across several pricing tiers hit the market. And since mortgage rates are likely to stay low for quite some time, buyers shouldn’t give up on the idea of being able to take advantage of them.