In a real estate market that has become increasingly difficult for millennials and (yes, they’re old enough now) Gen Zers to navigate, the coronavirus pandemic has made it even harder for first-time homebuyers.
Existing home sales in the U.S. are approaching a 14-year high, reported Reuters, perhaps driven by record-low mortgage rates and the migration from cities to suburbs as more people work from home.
“The 11% gain in prices is far above income growth and threatens overall affordability especially for first-time buyers,” said Joel Kan, an economist at the Mortgage Bankers Association in Washington. “It’s clear that more inventory is needed to keep home prices from rising too quickly.”
But it’s not all bad news, as there are some silver linings to purchasing a home right now. In some ways, the coronavirus crisis has led to unique advantages for buyers. If you are still financially able to buy a home during these times, these are the benefits you can take advantage of — plus some surprising disadvantages you should keep in mind.
Last updated: Sept. 24, 2020
Sellers Could Be More Desperate To Sell
Some sellers may give great deals to homebuyers out of desperation due to their own changed financial circumstances.
“Homebuyers may run into sellers that must sell to get their cash out,” said Brett Ringelheim, a licensed real estate salesperson with Compass. “In these scenarios, the buyer might be getting a better deal due to unforeseen circumstances that occurred in the seller’s life.”
But You Should Expect Some Healthy Competition
Recessions can come with a drop in home prices and fewer buyers looking to purchase homes — but unfortunately for prospective homebuyers, that isn’t the case with the current recession, based on Redfin data. In fact, bidding wars have become commonplace in the current real estate market, with Redfin reporting that 53.7% of home purchases in June were subject to bidding wars.
Mortgage Rates Are Near Record Lows
Mortgage rates are still experiencing record lows, which may be prompting buyers to act quickly before they start to rise again. The average rates for 30-year fixed-rate, 15-year fixed-rate and hybrid adjustable-rate mortgages are all at or below 3%, according to The Mortgage Reports. A conventional 15-year fixed-rate mortgage is sitting at just 2.625%.
“Record low interest rates can give the homebuyer an opportunity to lock in a very low rate for the next 30 years, as most mortgages are 30 years,” Ringelheim said.
But Mortgage Lenders Have Become More Selective About Whom They Approve
Although mortgage terms and rates may be more favorable for buyers, it’s now harder to get a mortgage.
“Lenders have become more restrictive around lending, so it may be more challenging to qualify,” said Phil Felice, CRO of Orchard, a tech-powered broker.
Prospective buyers should expect stricter documentation requirements and higher credit standards, The Seattle Times reported.
“But if you have good credit and a steady income, you can take advantage of very low rates,” Felice said.
Home Prices Are Quickly Increasing
According to Reuters, not only are more homes being sold, but their prices are quickly rising. The median existing house price jumped 11.4% from last year to a record $310,600 in August.
What’s more, most of the sales last month were concentrated in the $250,000 to $1 million and over price range, while transactions for homes under $250,000 were down.
Buyers and Brokers Are Less Aggressive Than Usual
Although there have been bidding wars, the pandemic also has caused some people to slow down and rethink their approach to the homebuying process, said Rebecca Brooksher, an agent with Warburg Realty.
“Everyone has a new perspective, so you are less likely to find the pushy broker or the buyer who will overbid because it’s the perfect house,” she said. “Everyone is on their best behavior. People are grounded and know their priorities.”
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Homebuyers Have More Time To Make an Offer
“The pandemic is making it easier for homebuyers to find the right house,” said John Castle, a realtor with Keller Williams. “Simultaneous showings are forbidden, which means it takes more time to generate enough exposure to sell the property. This gives buyers more time to make their decision.”
But This Won't Always Be the Case
A Zillow study found that homes sold in the U.S. during the second week of June typically stayed on the market for 22 days — the fastest pace in two years. However, how long a home typically stays on the market really depends on the area. Homes in New York City have been staying on the market for a median length of 70 days, while homes in Columbus, Ohio, are being snatched up in just five days, the study found.
Closing Is Happening More Quickly
“I am coming up on a closing, and the main thing I have noticed is how quickly things were happening,” said Heather Gregory of Flagler Duval Real Estate. “My buyers had no delays. I also sold at the very beginning of the pandemic and everyone on board was very fast due to the unknown. We got a townhome closed in two weeks.”
But You Should Expect Other Delays
Although Gregory said that closing has been happening quickly, other stages of the buying process have been slowed down by the pandemic.
“It was harder to get in to see homes,” she said.
Preapprovals and inspections may also take longer than usual, according to HomeLight.
Condo Prices Are Low
“The demand for short-term rentals has collapsed,” Castle said. “Consequently, a large number of condominium apartments have come on the market, and condominium prices in the most expensive cities are down substantially. Homebuyers can use this opportunity to find a great deal.”
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More Foreclosures Will Be Hitting the Market Soon
“Buyers can keep an eye on local foreclosures and bank REO properties, both of which should rise over the next year in the wake of the CARES Act foreclosure moratorium expiring,” said Brian Davis, real estate investor and co-founder at SparkRental.com.
There Aren't Enough Houses To Meet Demand
According to Reuters, there were 1.49 million previously owned homes on the market in August, which is down 18.6% from a year ago.
Usually, a six- to seven-month supply is considered a healthy balance between supply and demand; but if the home sales pace stays the same, it would take just three months to exhaust the current inventory.
Home Builders and Developers Could Offer Incentives in the Current Climate
“I’d encourage all buyers to check with local home builders and developers,” said James McGrath, co-founder of the New York City real estate brokerage Yoreevo. “These large operations need sales to keep their engine running, so even if they could sell for a bit more down the road, they may be offering incentives now which can make a big difference — especially on closing costs.”
Digital Marketing Has Made It Easier To Look At More Houses
“The surge in digital marketing for homes has made it much easier for a homebuyer to see if they like a home,” said Leo Young, a realtor with Coldwell Banker. “Many homes on the market now have extensive pictures, 3D virtual tours and video walkthroughs, so you can see almost every inch of a house without spending the time to drive back and forth or coordinate schedules.”
But Most Buyers Still Want To See Homes In Person
Despite the availability of digital homebuying, most buyers want to see properties in person, CNBC reported.
“A majority of home shoppers still do want an in-person tour before putting down their hard-earned down payment,” Amanda Pendleton, Zillow home trends expert, told the news channel.
Home Market Values Will Likely Increase After Purchase
“Lower interest rates have already been priced into the real estate market, and there is a forecasted drop in interest rates through 2021,” said Caleb Liu, owner of House Simply Sold. “Most home buyers are not aware of this and have not priced this into their buying decision. Buyers may be pleasantly surprised by a slight bump to their home’s market value after purchase, even in the face of a pandemic.”
Homebuying Assistance Programs May Be Less Available
Jeff McGuiness, chief sales officer of Embrace Home Loans in St. Louis, told The Seattle Times that down payment assistance programs that are tied to state and local government budgets may be less available because of financial pressure on governments caused by the pandemic.
In addition, “some banks are cutting back on their low down payment options,” he said.
There Is Still More Demand Than Supply
“The supply-demand imbalance in the housing market has been the case for years,” McGrath said. “The U.S. needs about 1.5 million new homes every year, and we’ve been building far less than that since the housing bubble popped. Before COVID-19, we were running at about 1.3 million and even less for the 10 years prior. With housing in such short supply, it’s hard to see prices falling much.”
The supply-demand imbalance has also been exacerbated by the pandemic, with many sellers taking their homes off the market for the time being.
“Normally this time of year you might have 40 or 50 houses to choose from, and now you only have four or five,” Brad Klimek, a Cleveland-based agent who specializes in first-time homebuyers, told HomeLight. “A lot of sellers are waiting for the virus to lift because they are scared for people to come into their home, even though realtors are taking every precaution.”
Suburban Homes Are In High Demand
The pandemic has caused people to reevaluate what they want in a home, and with many people working remotely, buyers are now looking for more space away from large cities.
“People are literally trying to get back to a house in the suburbs with a yard and a fence,” James Dietsche, a realtor at House 4 U Real Estate in Dillsburg, Pennsylvania, told The Washington Post. “Those are the houses that are blown off the market in two seconds.”
Dietsche listed a 1950s-style three-bedroom home in late June for $200,000 in a small town outside Harrisburg, Pennsylvania, and received bids from buyers in Philadelphia, New York City and the Washington, D.C., area. Prices in Harrisburg are up 10% compared to last year, the Post reported.
Other Factors To Consider Before Buying
There are clearly pros and cons to purchasing a home in the current real estate market. Before deciding if this is the right time for you, be sure to consider the following factors.
You Can't Time the Real Estate Market
“Recession or not, it’s impossible to time the market, whether for buying stock or buying real estate,” Roger Ma, a New York-based financial planner and owner of lifelaidout, told Realtor.com.
You might be able to get the best deal on a home or a mortgage right now, but it’s impossible to know that for sure.
Consider Your Own Financial Situation Before Buying
If your financial situation has changed or could change due to the coronavirus pandemic, consider if now is a good time for you personally to buy. To safeguard your financial health, it’s a good idea to search for homes that are under your budget so that you would be able to stay afloat if your employment and income situation were to change.
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Levi Leidy contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: 20 Surprising Things About Buying a Home During the Pandemic