Skyrocketing Housing Market

David LynchNovember 25, 2020

Financial Planning

If you took a walk in your neighborhood and saw a property with a “For Sale” sign, chances are the house has already sold.  A house in my neighborhood recently sold for over 12% of asking price – on the day it listed.  The house wasn’t made of gold, so what is the attraction? In the midst of a global pandemic and national recession, demand for homes has skyrocketed.  According to the HUD Research Office, new homes sales increased 16% from January – July 2020.  Existing home sales rose over 8% in that period.  Many factors are associated here; pent-up savings from less spending opportunities, need for more home office space, and even a desire to get out of congested cities and into spread out suburbs.  However, historically low interest rates are perhaps the most crucial in pinpointing this development.  Whether you own a home, want to purchase a home, or plan to buy an investment property, this environment presents potential opportunities and many thoughts to consider.

Refinancing most often occurs when mortgage rates change, people want to change the terms of the loan, or cash is needed from equity of the house.  The monthly mortgage payment for many clients represents the largest monthly expense.  As such, it is important to break that number down, and think about the impact it has on your specific financial plan.  Do you have excess cash that you want to put towards a lower monthly payment? Can you afford to keep paying a mortgage payment in retirement or should you pay it off before retirement? Do you have a large purchase coming soon that can’t be paid through investment accounts?  The reason why a refinance is completed will determine the benefits, but the goal for each occasion is to better balance your home equity, your mortgage payment, and your assets into a more advantageous financial position for you.

While there is no limit to the number of times you can refinance a home, the tedious process and refinancing costs may dissuade too much refinancing.  In addition, homeowners across the country have been demanding to refinance in order take advantage of the historically low interest rates.  Applications to refinance homes increased 52% in September 2020 from September 2019.  This means mortgage lenders may have backlogs for refinancing applications and may take new mortgage applications first.  It may be wise to inquire several different mortgage lenders to compare wait times before making a decision.

If you are planning to buy – home prices have increased dramatically.  The dwindling supply of houses has been engulfed by the ferocious demand for real estate. In July 2020, home prices had increased 4.8% nationally from the previous year.  While right now is certainly the time to buy and lock in a low rate, the actual cash needed for down payments continues to hurt younger individuals who may have less excess cash available. However, if the individual qualifies, mortgage lenders may offer loans with less than 20% down payments, in some cases as low as 3.5%.

While interest rates are expected to remain low throughout the next couple of years, as indicated by the Federal Reserve, the housing market continues to roar.  Some analysts think that when the coronavirus has subsided and potential buyers are willing to tour open houses and consider moving, the inventory of homes will increase and prices will stabilize.  The story will continue to evolve with housing, much like the economy as a whole.  If you have any questions regarding how your home or potential home fits into your financial picture, don’t hesitate to reach out to your advisor (610-651-2777).  We are happy to help, and if appropriate can put you in contact with trusted mortgage lenders when you’re ready.

Have a safe, healthy and happy Thanksgiving.


CNBC.com – Article 1
CNBC.com – Article 2
Additional Website Disclosures