Why buyers should prepare for bidding wars

Here’s a look at the latest developments in the mortgage market for the week beginning 2/15/21.

• The number of buyers being outbid for a home has doubled
• Mortgage delinquencies drop to their lowest since the start of the pandemic
• Home prices are 46K higher than last year, and rising
• What homeowners should know about mortgage tax deductions

The number of buyers being outbid for a home has doubled

As more buyers enter the market this winter, the chances of being outbid for a home may be rising. A recent survey by the National Association of Home Builders (NAHB) suggests that bidding wars are becoming more common. Among home shoppers who have been searching for more than three months, 40% say they’ve been repeatedly passed over for higher offers. That’s more than double the number of homebuyers who were outbid at this time last year.

So why is competition so hot? Simply put, new buyers keep cropping up while the supply of homes for sale continues to dwindle. In January, the number of homes on the market was 42% lower than the prior year—a difference of about 443,000 homes. At the same time, more than half of those who were planning to buy a home in late 2020 are now actively looking, and the number of buyers applying for a purchase mortgage is up by 16% from last year. That’s a surge of new buyers who are watching listings, adding to the potential for bidding wars.

Anyone hoping to buy a home this year should be ready for competition. But the right preparation can raise your chances of a winning bid, like getting pre-approved to be able to move quickly on the home you want. Some buyers may even want to crunch the numbers and explore how different loan options could raise their offer amount.

Mortgage delinquencies drop to their lowest since the start of the pandemic

The number of delinquent mortgages has dropped, which is a positive sign for both struggling homeowners and general economic recovery. November’s numbers are in and 6.73% of all active loans were considered delinquent—a total of 2.7 million home loans. For context, this is the lowest level of mortgage delinquencies since the start of the pandemic, after last April reached a peak of 14%.

Delinquencies refer to any loan for which the borrower has missed or been late on payments. In November the rate declined by a whopping 92 basis points, which is also the biggest quarterly drop since 1979.

In similar circumstances are mortgages in forbearance—loans with a lender-approved pause or cut in payments. They’ve also reached their lowest level since last April at 5.29%, or 2.7 million home loans. In an effort to provide owners more recovery time, the government has pushed back the deadline to request forbearance to June 2021, and allowed six more months of deferred payments for federally funded loans.

These shifts speak to the way many homeowners’ situations may have improved since last spring, but levels of delinquency and forbearance are still dramatically higher than in pre-pandemic years. Instead of falling behind on payments, owners may want to consider a refinance, which would replace their existing loan with a new one, with terms that could help them regain financial stability. Qualifying homeowners may also be able to roll in their closing costs, which cuts out the upfront cost of refinancing altogether.

Home prices are 46K higher than last year, and rising

Prices were predicted to rise this year, and so far that appears to be the case as median listing prices continue their upward trend. In January, the national median listing price was $346K, up from $300K in January 2020. Similarly, the week ending February 6th saw median prices jump 12% from a year earlier, marking six months of double-digit annual price growth.

What’s making prices go up? It’s mainly the squeeze of low supply and high demand, as a surge of active buyers search for homes in a low inventory market. That places upward pressure on prices and adds to the anticipation of new supply. And while there will be a wave of new home construction hitting the market this spring, it may not be enough to satisfy demand.

Rising prices make securing a low mortgage rate even more important. Luckily, there are a number of ways to increase your chances of getting the best deal possible. Paying down debt can improve both your credit score and debt-to-income ratio, and is especially useful for buyers who are still in the planning phase as prices are expected to keep rising.

What homeowners should know about mortgage tax deductions

It’s coming up on tax time and being a homeowner can offer some surprising financial advantages. Certain mortgage costs, like interest and private mortgage insurance (PMI) are deductible, and can therefore be subtracted from your taxable income. If they total up to more than the standard deduction, you may end up owing less in federal taxes. Learn more about what can be deducted, how to calculate them properly, and whether or not you should claim them on your tax return.

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