Is Now A Good Time To Buy A House?
Kevin Graham7-Minute Read
September 17, 2020
Mortgage rates are near historical lows, but there’s no doubt that the situation across the housing market and the entire economy has changed in the wake of COVID-19. If you’re looking for a home, it’s really important to understand the dynamics of the current market in order to figure out whether it’s the right time for you.
How To Buy A House During COVID-19
In any discussion of trends in the housing market right now, there’s no point in not acknowledging the elephant in the room. COVID-19 coverage fatigue is understandable, but it really is the driver of everything that’s happening in the real estate market. Here’s what you should prepare for if you’re looking to buy right now.
Getting The Job Done Differently
Banking and financial services are considered essential across the country. While this means that we can help you in partnership with regulators, several temporary changes have been made in the mortgage process in order to protect the health and safety of all involved. There are important things to understand about both the appraisal and closing process in the time of COVID-19.
When an appraisal is necessary, doing one via desktop may be an option. In this case, the appraiser uses data on the home and the market and makes their recommendations. In other instances, we may do an appraisal limited to the exterior of the property, referred to as a drive-by appraisal. In those cases when an in-person appraisal is necessary, the appraiser will follow social distancing guidelines and may wear gloves or a facemask. Any actions taken are for your safety. If you’re sick, your appraiser will reschedule.
When it comes time to close, you may be able to electronically sign certain paperwork that doesn’t need to have the signature witnessed by a notary ahead of time in order to minimize contact. For those documents that do need to be signed in the presence of a closing agent, your closing process may be modified in order to accommodate safety procedures.
Make Sure You Shop Around
It’s going to be important to shop around because lenders have made process changes to varying degrees to account for the new environment we’re in. These can include verifying employment on the day of closing and changes to the way rate locks work. The market has stabilized enough that our sister company Quicken Loans®1 has made the decision to return to normal pricing when it comes to locking rates, but that’s certainly something to be mindful of. Lenders may choose to charge more right now in order to lock your rate for a longer period of time.
Know Your Credit Score
Another reason to look at multiple lenders is that many banks and other mortgage lenders are being especially careful as a result of the economic impacts of COVID-19.
Some lenders are severely limiting the availability of certain mortgage options. It’s not uncommon to see stories in the media about lenders requiring a minimum 700 median FICO® Score and a 20% down payment because they’re afraid to take on risk right now. Other lenders like Quicken Loans®, while acknowledging the reality of the situation and making judgments on the right thing to do, haven’t taken such drastic steps.
Whoever you end up going with, it’s important to be especially aware of your credit score right now. Events like this can cause enough financial stress, but scammers also take advantage of the situation in times of change and increased worry, so it’s important to be super vigilant to avoid scams and identity theft.
Our friends over at Rocket HomesSM will allow you to see your VantageScore® 3.0 credit score and report from TransUnion® once a week. In addition, you’ll receive information on how you can improve your score based on what shows up in your report.
Are You Ready?
The last thing to make sure you’re absolutely aware of as an individual is whether now is the right time for you. This is always the case, but particularly given the current situation, you want to make sure that the purchase of your home won’t put you in an untenable position should anything come up that puts stress on your budget.
Make sure your savings are in good shape and that you have an emergency fund that can cover you in the event of an income loss for several months and give you the ability to pay for unexpected expenses like an emergency medical bill.
You should also know that because of the continued uncertainty around the timing of things getting back to more of a state of normalcy, you won’t be able to qualify if you’re not receiving income due to a temporary furlough. Even if you’re furloughed with your full income, your options may be limited at the moment. Shop around, and certainly look at all avenues, but it’s something to be aware of.
Buying A House In 2020
Now that we know the context surrounding why the market is the way it is, let’s get to the meat and potatoes of the matter: What effect is this having on real estate?
Housing Market Trends
We’re seeing indications that demand continues to be high in the purchase market despite the ongoing situation with COVID-19. According to an index put out by the Mortgage Bankers Association, the number of mortgage applications made by those looking to purchase a house has gone up each of the last couple of weeks. Even more encouragingly, application volume among those looking to purchase a home is only 1.5% below the same time last year when the nation didn’t have to worry about these precautions.
At the same time, sales of existing homes were down 17.8% in the month of April due to a lack of market activity when much of the country has been on lockdown. Interestingly though, inventory of existing homes on the market also decreased as people pulled their homes on the market, either feeling that the outbreak would force them to settle for a lower price or that current conditions make homes impossible to sell.
Because of the decreased inventory, prices haven’t dropped. The median price of an existing home nationally was up 7.4% in April compared to last year at the same time and has been steadily increasing, albeit at a slightly slower pace.
A survey from Fannie Mae shows that an increasing number of both buyers and sellers expect prices to decline in the near-term, but the data may not bear that out because purchase applications are at a level comparable to last year. Because this is traditionally purchase season, there is reason to believe that even if the homes that have been taken off the market are relisted and added to inventory, it would be a solid hypothesis that prices continue to rise given pent-up demand.
Moreover, the same Fannie Mae survey shows that even with many people not working right now, they expect the layoffs or furloughs to be temporary. Of Americans surveyed, 76% said that they aren’t concerned about losing their job, which is comparable to the 77% level seen in March. Assuming any second wave of the virus could be contained, this would point to good things for the future of the housing market.
Mortgage rates are helping motivate buyers to take advantage and get out in the housing market right now. In the most recent weekly data, the average 30-year fixed mortgage with 0.7 points paid in fees had fallen to 3.24%, down from 4.06% a year ago and very near record lows for this index.
As interest rates have decreased, it increases the buying power of those who can afford to purchase right now. This increased buying power also supports a higher price level for both new and existing homes if everything else is held equal.
Working With A Real Estate Agent
While the market might be showing some strength right now, all real estate is local and that’s never been the case more than right now. The virus means that the conditions on the ground could be very different even from city to city. Because real estate agents are on the ground in your area every day assisting with the buying and selling of homes, they’ll be in a position to give you the best advice.
There are upsides and downsides to shopping right now.
First, you can still shop. According to the most timely data available from the National Association of REALTORS®, 28% of buyers and their agents are utilizing virtual showings with 20% going so far as virtual open houses. Virtual tours are being utilized by 38% of agents to give a walk-through of the house to a broader audience.
If you find the right house on the market right now, there’s a good chance you could get an offer in while there is less competition. If the seller is motivated, they may accept a slightly smaller offer, but at the very least, your offer will be entertained without as many other prospective buyers.
The downside is that because less homes are being listed, you may have a harder time finding the home that suits you. The bigger the pool of options, the better your chances. Additionally, some may not view virtual walk-throughs and tours is a suitable replacement for going through the home on an in-person basis.
In any case, working with a real estate agent from Rocket Homes Real Estate LLC will help you navigate the market easier. We can match you up with an agent who works with homes in your budget and understand your goals.
If you’re ready to get started with the purchase process, you can get a mortgage approval online with Rocket Mortgage® by Quicken Loans®.
1 Quicken Loans® and Rocket Homes Real Estate LLC are separate operating subsidiaries of Rock Holdings Inc. Each company is a separate legal entity operated and managed through its own management and governance structure as required by its state of incorporation, and applicable legal and regulatory requirements.
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