The pandemic has shaken the economy to its core. An estimated 31 million Americans were rendered jobless due to COVID-19. Despite the economic hardships, the real estate market has been surprisingly resilient. The historic low-interest rates drive this unexpected boom. This article examines why mortgage refinancing is outpacing new home purchases.
Why More Homeowners Are Refinancing
Mortgage refinancing refers to the process of taking out a new loan to pay off the old one. Homeowners typically refinance to take advantage of better terms. Here are the two main reasons driving the current surge of mortgage refinancing.
Empire Today Special Offer: Schedule Free Quote Now
The rock-bottom interest rates are responsible for the spike in mortgage refinancing witnessed in 2020. By locking in a lower rate, homeowners can save thousands of dollars in the long term. According to Mortgage Bankers Association, the average interest rate for a 30-year mortgage has fallen below 3% for the first time in 50 years. Naturally, many homeowners have jumped at this chance since most pre-existing mortgages are more than 4%.
Some homeowners have even taken this opportunity to cash out on their home equity. The resulting cash can come in handy during these hard times. However, this is only a viable option if you have enough built-up equity in your home. Otherwise, you risk being underwater in your mortgage. Experts recommend that a large chunk of your cash out should go towards renovating your home.
Despite the irresistible rates, some homeowners are choosing to sit-out this once-in-a-lifetime opportunity. Refinancing makes more sense when you are planning to stay put. However, with millions out of jobs, most people are uncertain about their living situation. Refinancing may also not the best move if you are close to finishing your payments.
Lower Your Mortgage Payment: Free Eligibility Quiz
Working from Home
Working from home has become a standard policy globally. According to figures from the Society for Human Resource Management, teleworking has increased from 25% to 67%. One benefit of telecommuting is that you can live anywhere. As a result, many people are moving from crowded cities to quiet and spacious suburbs. Thanks to the affordable rates, many potential home buyers are finding it easier to own a home.
While those looking to refinance are enjoying great deals, new home buyers are hitting the low inventory wall. There are just not as many homes available for sale in the market. Uncertainties are making potential sellers hesitant to put their homes up for sale. The results are a significant rise in home prices.
Reasons for the low Inventory
Typically, low mortgage rates make housing more affordable. However, the pandemic has made the real estate market less than ideal. There is a shortage of houses for sale despite the appealing rates. Here are the top three reasons for the low inventory.
Construction Has Slowed Down
- Movement and business operations were restricted during the lockdown. That means, a lot of housing projects that were underway stalled, causing a shortage.
- Sellers are not listing. Although the demand is at an all-time high, potential sellers are hesitant to list their homes. Most people are opting to stay longer in their homes as they wait for the market to stabilize.
- Competition from investors. Residential real estate is one of the few sectors that survived the pandemic. Thanks to low mortgage rates and increased demand, it is the perfect time to invest in real estate. Buyers are now competing with investors for the limited properties available.
The current market conditions make it the ideal time to refinance your mortgage. This rock bottom rates will continue to rise as the economy re-opens. However, only apply for refinancing if you are not planning to move soon.