As home prices rise, home buyers are having to borrow more. The average amount for a mortgage on a home purchase recently surged to an all-time high of $395,200, the Mortgage Bankers Association reported for the week ending Jan. 22.

“Average purchase loan amounts in early 2021 continue to rise across all loan types, driven by a strong pace of home sales, tight housing inventory, and high home price-growth,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a statement this week in reporting the latest data on mortgage applications for the week ending Jan. 29. “Conventional, FHA, and VA purchase loan sizes all set new survey records last week.”

Record-low mortgage rates may be enticing more buyers to take on greater mortgage debt. Still, financial experts are warning home shoppers to beware of taking on too high of a mortgage and ensure they aren’t stretching their monthly payments beyond what is typically considered financially comfortable. Financial experts often say that families who pay more than 30% of their income for housing are considered “cost burdened,” which could put them in jeopardy of being able to cover other necessities like food, transportation, and medical care costs.

This spring will likely be another fiercely competitive one for home buyers. Real estate professionals should prepare their house hunters for record low inventories and rapidly rising home prices.

“Demand for housing was already strong coming into the year and we don’t see that slowing down with millennials reaching prime home-buying age, and many remote workers still in the market for more space,” says Danielle Hale, realtor.com®’s chief economist. “At the same time, sellers failed to materialize in January, which has pushed the number of homes for sale to new lows and suggests that our new normal of rising prices and brisk sales is here to stay at least through the first half of the year. Those thinking of getting into the market this spring should brace themselves for a competitive season, especially in the market for existing homes.”

If January is in any indication of how the spring market will play out, home shoppers will need to be ready to act quickly and have their financing in order. There will be fewer choices and likely continued high buyer competition. The number of homes for sale nationwide in January plunged 42.6% year-over-year, a new low, according to realtor.com®’s records dating back to 2021.

New listings in the 50 largest U.S. metros were down by the largest amounts in Cleveland; Jacksonville, Fla.; and Memphis, Tenn., which posted drops at 37.1%, 36.9%, and 32.6%, respectively, according to realtor.com®’s January Housing Trends Report.

Median national home listing prices increased by 15.4% compared to a year earlier, reaching $346,000 in January. The nation’s median listing price per square foot grew by 17.5% in January compared to a year ago, realtor.com®’s report shows. Median list prices posted the highest annual growth in January in Austin, Texas (up 30.2%); Rochester, N.Y. (up 25.9%); and Los Angeles (up 22.4%).

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The U.S. received little relief from the occurrence of natural disasters in 2020, which marked the sixth consecutive year with more than 10 weather and climate events that surpassed $1 billion in economic losses, according to CoreLogic’s newly released 2020 Climate Change Catastrophe Report.

Many properties in the U.S.—even outside coastal areas—are at risk of flooding, hurricanes, wildfires, earthquakes, or damage from wind and storm surge. The homes at highest risk are in California, Texas, Oklahoma, Kansas, Nebraska, and places along the Mississippi River. Large Gulf and Atlantic coastal stretches are at risk of hurricanes, storm surges, and river flooding, the report notes.

Home buyers and sellers are growing more concerned about natural disasters. Nearly three-quarters of Americans and Canadians who bought or sold a home in 2019 say that an increase in the frequency and intensity of natural disasters is “somewhat” a factor in their decision to buy or sell, according to a survey conducted earlier this year by real estate brokerage Redfin. Of the 29 metro areas tracked in the survey, Houston residents were the most concerned about natural disasters, with nearly 60% saying that an increase in the frequency or intensity of natural disasters “very much” factors into their decision to buy or sell a home. New York followed at 47%, and Miami was third at 46%. Overall, people in the South and Northeast—36% and 35%, respectively—say that natural disasters seriously impact their real estate decisions. Midwest respondents have the lowest concern about the impact of natural disasters, according to the survey.

CoreLogic researchers call for better disaster resilience to protect individuals and homes. For example, they say strengthening new homes is important to reduce losses from fires and natural disasters. Property risk analysis to accurately predict possible damage from disasters could help insurers protect homeowners, including private flood insurance, parametric insurance (which protects a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event), and wildfire insurance.

“2020 has been quite a year,” the report says. “The nation has seen record-breaking wildfires, hurricanes, floods, and tornadoes, prompting governments, insurers and property owners to think of new ways to mitigate risk and make neighborhoods more resilient.”

Pending home sales reached a record high for December last month as the unseasonable housing surge continued in markets across the country during the COVID-19 pandemic.

Pending sales were up 21.4% year over year in December, reaching the highest reading for a December on the National Association of REALTORS®’ Pending Home Sales Index. All major regions of the U.S. recorded double-digit increases annually.

However, the index—a forward-looking indicator of home sales based on contract signings—did drop slightly, by three-tenths of a percentage point, in December compared to November. December’s index reading was 125.5. (An index of 100 is equal to the level of contract activity in 2001.) The slight month-over-month decline was blamed on fewer contract signings in the Midwest, NAR said. In other regions, contract signings saw an uptick or stayed flat in December.

Housing shortages continue to press on the housing market. “Pending home sales contracts have dipped during recent months, but I would attribute that to having too few homes for sale,” said Lawrence Yun, NAR’s chief economist. “There is a high demand for housing and a great number of would-be buyers, and therefore sales should rise with more new listings. This elevated demand without a significant boost in supply has caused home prices to increase and we can expect further upward pressure on prices for the foreseeable future.”

Yun projects that 2021 will see strong economic growth, supported by low mortgage rates and fiscal stimulus, that could help increase existing-home sales. He predicts the 30-year fixed-rate mortgage to stay near record lows, averaging 3%. He added that these low mortgage rates likely will help bolster existing-home sales to 6.49 million this year, which would be a 15% increase over the total 5.64 million sales in 2020.

New-home sales tapered off at the end of 2020 as higher home prices offset some of the strong buyer demand seen earlier in the year. While sales of newly built single-family homes increased 1.6% in December, sales had been much stronger over recent months.

New-home sales in 2020 posted an 18.8% increase over 2019, the U.S. Department of Housing and Urban Development and U.S. Census Bureau reported Thursday.

“While the market remains solid, median home prices are increasing due to higher building material costs, most notably softwood lumber, and a shift to larger homes,” says Robert Dietz, chief economist of the National Association of Home Builders.

The median sales price was $355,900 in December. In December 2019, the median new home sales price was $329,500.

“Looking forward, builders are concerned that increased regulatory burdens in 2021 could hurt housing affordability,” says Chuck Fowke, chairman of the NAHB.

The inventory of new homes remains low at a 4.3-month supply, nearly 19% lower than a year ago.

Across the country, new-home sales saw the largest gains for all of 2020 in the Midwest—up 24.2%—followed by a 21.2% gain in the Northeast, an 18.9% increase in the West, and a 17.6% increase in the South.

Mortgage rates headed back down this week, continuing to hover near all-time lows. “As the market reacts to a new administration in Washington and COVID-19-driven economic malaise, mortgage rates continued to decrease this week, just slightly,” said Sam Khater, Freddie Mac’s chief economist.

Also, the Federal Reserve announced this week that it will leave both interest rates and its bond-buying program unchanged, both actions likely helping to keep mortgage rates low.

The low rates continue to attract home buyers. Home sales in 2020 rose to the highest level in 14 years, according to the National Association of REALTORS®’ latest housing report. Demand is surging for a shrinking number of homes for sale.

“Even as house prices increase at the fastest rate we’ve seen in years, competition to buy is strong given the low inventory that exists across the country,” Khater said. “The fact that there are not enough homes to meet demand is going to be an ongoing issue for the foreseeable future.”

NAR is forecasting existing-home sales to rise more than 10% in 2021.

Freddie Mac reports the following national averages with mortgage rates for the week ending Jan. 28:

• 30-year fixed-rate mortgages: averaged 2.73%, with an average 0.7 point, falling from last week’s 2.77% average. The lowest on record for 30-year fixed-rate mortgages was 2.65%, recorded earlier this January. A year ago, 30-year rates averaged 3.51%.
• 15-year fixed-rate mortgages: averaged 2.20%, with an average 0.6 point, dropping from last week’s 2.21% average. A year ago, 15-year rates averaged 3%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.80%, with an average 0.3 point, unchanged from last week. A year ago, 5-year ARMs averaged 3.24%.

Freddie Mac reports average commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.

Veterans are bullish when it comes to homeownership. A recent survey by Fannie Mae showed a slight decline in overall homebuying confidence among the American population, but among veterans, that confidence is growing.

Indeed, 58% of veterans say they plan to buy a home within the next five years, according to The 2021 Veteran Homebuyer Report, produced by Veterans United Home Loans based on a survey of about 1,000 vets. That could amount to 11.3 million potential veteran buyers, the report notes.

“Veterans have a deep desire to own a piece of the American dream they vowed to defend,” says Chris Birk, vice president of mortgage insight at Veterans United, a lending company that works with veterans.

Despite a rise in home prices, vets feel financially ready to buy. Sixty percent of veterans surveyed believe their financial situation will improve during the year. Fifty-nine percent believe they will be able to get the home of their dreams.

Fannie Mae

Many veterans overestimate the down payment and credit score they need to qualify for a mortgage. Nearly 90% of veterans believe they need at least a 670 FICO score to qualify for a home loan. Also, 41% believe they need to put down more than 20% of a home’s purchase price. Many veterans are eligible for a VA home loan, which requires no down payment. The report found, however, that only 3% of vets said they believed they’d be able to get a mortgage with no down payment.

VA Loans Are Having a Record Year

Like the general population, the pandemic has affected homebuying plans for vets, the survey finds. Nearly half of veterans cited the COVID-19 pandemic as a source of uncertainty and a potential barrier to buying a home this year. But 43% of those surveyed said they bought a home sooner than they had planned due to the pandemic; 32% placed their homebuying plans on pause; and 21% decided to refinance on their current home.

The top 10 reasons vets want to purchase a home are:

• Change of scenery/lifestyle: 25%
• Need smaller home/trading down: 20%
• Need bigger home/trading up: 19%
• Want to be closer to family: 19%
• Family size change with child: 17%
• Income change/right time: 17%
• Tired of wasting money on rent: 16%
• Build more equity for retirement: 15%
• Retiring or cutting back on work: 15%
• Neighborhood no longer desirable: 14%