The best & worst states for buying a home right now

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With interest rates at an all-time low, more Americans are looking to buy a home this year. Whether you’re shopping for your first home, upgrading, or moving to a new city, it’s important to be prepared before jumping into a huge financial decision.

Although interest rates are low, the housing market has continued to increase around the country, making it difficult to understand where the most affordable places are to buy a home this spring.

I’ll walk you through where the real estate market is right now, offer some tips all homebuyers should consider before purchasing property, and take you through the best and worst housing markets to explore this spring.

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The housing market in 2021

The real estate market was booming throughout 2020, with many Americans diving quickly into homeownership as the pandemic left millions working remotely. Security and stability became key drivers of increasing home buying practices, and while the U.S. economy remained shaky, the housing market was thriving.

In the first few months of 2021, the market remained hot, with prices continuing to increase throughout most of the U.S. The housing market overall is facing a supply shortage, which has only led to increasing prices, bidding wars, and a highly competitive market.

On top of this, mortgage rates are at all-time historic lows, driving even more buyers to seriously consider homeownership.

Though home sales dipped in February, according to Zillow, homes remain in high demand. This dip could have been a result of icy temperatures, rising prices, and less impressive listings overall, but it’s expected to increase again as the weather warms.

Since many of us are working remotely for the foreseeable future, location is playing less of a role in terms of job security. If you’re open to moving and looking for great home deals and places where appreciation is expected to increase drastically, here are the best and worst markets to look at this spring.

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The 5 Hottest Markets in Spring 2021

Here are some markets with growing home value appreciation and overall affordability when compared to the cost of living and economic growth.

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5. Idaho

One of the hottest markets worth exploring right now is Idaho. This state has led the country in home value increases, with a 20% increase in value over the last 12 months ($297k average home value in February 2020, increased to $359k by February of 2021). Idaho also has a lower than average cost of living and has also led the country in economic recovery during the pandemic.

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4. Indiana

The Hoosier state is another hot place to buy a home right now. Indiana has experienced a 10% increase in home values in the past year, with average values increasing from $158k in February 2020 to $174k as of February this year. Indiana’s cost of living and property taxes are also below the US average and the state overall has faired better with job growth and unemployment than most others during the pandemic.

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3. Nebraska

Home values in Nebraska have increased by 8.1% over the past 12 months, which average prices increasing from $180k last February to $195k in February of 2020. The average cost of living in Nebraska is well under the US median and this state has consistently averaged the lowest unemployment rate during the pandemic.

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2. Montana

Montana saw an 11.2% increase in home values over the past year, with average prices jumping from $295k in February 2020 to $328k in February 2021. Montana’s cost of living is also below the U.S. average and Big Sky Country also has lower than average property taxes.

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1. Utah

Homes in Utah jumped up in price by 14.8% in the past year with the average home price increasing from $355k in February 2020 to $408k in February 2021. Utah also led the county in job growth throughout 2020 and had the fourth-lowest unemployment rate in January of 2021. Utah also enjoys lower than average property taxes when compared to the rest of the U.S.

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5 Markets to Avoid in 2021

Despite low mortgage rates and increasing home values across the country, there are a few markets experiencing stalls in growth right now.

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5. New York

New York home values have risen by over 8% in the past year, but it may not be the best time to buy, particularly in the city. New York City has seen a 12.7% decrease in rent in Manhattan in 2020, despite rising home prices. This state was hit hard with economic strife throughout the pandemic and is still recovering from high unemployment rates and slow job growth.

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4. Washington D.C.

This city recently ranked last in home price appreciation when compared to other states, with only a 3.1% change over the past 12 months. Washington D.C. is also an expensive area to live in, well above the US average, and its unemployment rates have been high, disproportionately impacting Hispanic, Latino, and young workers.

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3. Hawaii

Hawaii saw a 5.5% increase in home values since February of 2020, but lack of tourism and vacations during the pandemic has hit this state’s economy hard. Hawaii also has an extremely high cost of living and was tied in first place with the highest unemployment rates during the pandemic.

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2. Louisiana

Homes in Louisiana have only experienced a 4.7% increase in home values over the past year. While Louisiana does have a lower than average cost of living, the state has experienced lackluster job and economic growth over the past year. Louisiana also has some of the highest numbers of mortgage delinquencies in the country.

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1. Illinois

While most Midwestern states are a safe bet for buying a home right now, Illinois is one state you might want to avoid. Although this state saw a 7.1% increase in home values this past year, the high unemployment rates and housing bidding wars occurring across the states are good indicators to wait it out for now. It’s also worth noting that Illinois has the highest mortgage foreclosure and delinquency rate in the Midwest amid the pandemic and extremely high property tax rates.

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Important factors to consider before buying a home

Before jumping into the home buying process, it’s important to know what you’re dealing with. Almost all buyers are entering into similar markets — prices are inflated, competition is fierce, and mortgage rates are low. Prices are also expected to increase in 2021, though not at the fast-paced rate we saw in 2020. It’s a seller’s market overall, despite low-interest rates.

This simply means that serious buyers need to move quickly when searching for a home. Preparing in advance is the best way to ensure you can jump on home listings immediately, without facing potential roadblocks.

Related: First Time Buying a House? Here’s What to Expect

Know your credit score and DTI

It’s important to know where you stand before applying for a mortgage. You can check your credit score for free using a variety of platforms such as Credit Karma or Credit Sesame. I highly recommend looking into both your FICO and VantageScore, the two main models used by lenders to calculate scores.

Related: FICO vs VantageScore: What is a Credit Score?

In general, you’ll want at least a 620 credit score or higher to secure financing. Most conventional loans start at 620 and up, while FHA loans do dip down to 580 minimums. It’s possible to get approved with a lower score, but you should expect a higher interest rate. Of course, having a score of 700 or above will help you lock in low interest rates, which could end up saving you tens to hundreds of thousands of dollars in interest during the lifetime of your home loan.

Your DTI (debt-to-income ratio) should also be reviewed. Lenders like when individuals have DTIs of 45% or less, though some lenders require lower percentages, closer to 36% or less. Paying down debt is the best way to decrease this score.

If your credit score or DTI isn’t where you would like it to be, try minimizing your debt by paying more than the minimum required, ensure you continue to make on-time payments, and dispute any information that might not be correct before applying for a mortgage.

Related: How Credit Score Ranges Impact Your Ability to Borrow

Review home loan types

While you don’t have to decide on the type of mortgage you want in advance, it’s important to know what’s available, so you can make quick decisions once you find a home you’re interested in.

Conventional home loans are private loans issued by banks and other financial institutions. They typically have higher interest rates since they are not backed by the government and require private mortgage insurance if you put less than 20% down. Conventional loans can also be easier to qualify for and may be a good option for those with low credit scores.

FHA loans are secured through the Federal Housing Administration (FHA) for first-time home buyers. FHA mortgages typically have lower mortgage rates, low credit score requirements (580+), and low down payment requirements (3.5%).

Related: Best FHA Lenders for Mortgages

USDA loans are secured through the Department of Agriculture (USDA) for homes available in designated rural areas. USDA mortgages have lower than average mortgage rates, low-to-average credit score requirements (640+), and no down payment requirements.

VA loans are secured through the Department of Veteran Affairs for those who served in the military, are in active service, and their families. VA loans have low mortgage rates, no credit score requirements, and no down payment requirements.

Related: How Much House Can I Afford? Read This Guide

Get pre-approved for a home loan

While this step is optional, if you’re serious about buying a home quickly, getting pre-approved is your best option. To do this, you’ll want to research lenders, decide on the right loan type, and begin applying for pre-approval.

This does two things — it first allows you to act quickly when a home you’re interested in shows up on the market and it helps you understand how much of a home you’re qualified to purchase.

Discuss any moves with your employer in advance

Even if you work remotely and will continue to do so for the foreseeable future, it’s important to discuss moving out of your current city or state with your employer before buying a home. Many companies like Facebook, Microsoft, Redfin, Slack, and many others are cutting remote employees’ pay based on their locations.

It’s important to know if your salary will change based on relocating before agreeing to a mortgage amount, so you can factor a salary cut into your new household income before making any home-buying decisions.

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Is now the right time to buy?

The housing market may seem to be all over the place right now, so it’s important to check out your local market, compare current and past home prices, view expected appreciation rates, and work with a professional broker to better understand what areas are most likely to experience growth.

Depending on where you live or where you’re willing to relocate, now might be the perfect time to transition into homeownership. Just make sure you review your budget, understand your loan options, and compare lenders before you begin home shopping.

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