The COVID-19 crisis has had a significant impact on the housing market and the full effect may not be seen for another 12-18 months. As the economy ground to a halt in March, the housing market took a massive hit. Home sales dropped nearly 18% in April, according to the National Association of Realtors. This drop in sales drove inventory down as people grew reluctant to put their home on the market, further leading to price increases.
However, we are starting to see some positive indicators that the market is rebounding. As states and communities slowly reopen, homebuyers are entering the market again. By the end of May, mortgage applications were up 54% since early April, according to the Mortgage Bankers Association. And even with the dramatic spike in unemployment in March and April, the market is gaining surprising strength.
Buying a home is one of the biggest and most important financial investments you will make, especially in uncertain times like we are currently experiencing. If you are in the market to buy or sell, here are some tips to consider.
One of the first steps we recommend buyers take is to get preapproved for a mortgage. It’s important to know that loan prequalification is different from preapproval. The former involves only a cursory look at basic financial stats like your credit score, income and outstanding debt, but it is not an official agreement to extend a mortgage your way. The benefit of being prequalified is that it does not take as long to process compared to a preapproval, and it offers buyers a degree of flexibility. As a buyer, know that your lender may need to verify your employment several times through the homebuying process and some lenders may require higher credit scores to qualify for a mortgage.
Find an experienced real estate agent
In a competitive market with low inventory, buyers need as much help as they can get. Be sure the real estate agent you work with knows your city and area well enough to be of service.
Expect technology to play a big role
Be prepared to practice social distancing as you house hunt. Right now, there are not a lot of open houses and touring homes digitally is the new normal. Zillow reported a 408% jump in agents using its 3D home tour feature in March compared to a typical week in February of this year. Buyers and sellers should expect new policies and listing protocols from electronic closings to limiting in-person meetings to protect the health of everyone involved.
Be ready to make an offer
Even as home sales declined nationally overall with stay-at-home orders, the National Association of Realtors reported that the median existing-home price for all housing types in April was $286,800, up 7.4% from April 2019. In major cities, there has been less of a supply and more of a demand for houses in the past few weeks.
Anyone buying a home today should not only expect to pay more than usual but to be forced into a decision quickly. While everyone wants to get a bargain in any transaction, the nature of a seller’s market implies that homeowners do not even need to bother with low offers. If you find the absolute perfect home, be prepared to make an offer that’s over budget. Right now, with forbearance requests surging and possibly more foreclosures in the coming months, you might need to be prepared to put more money down as well.
Sweeten the deal to survive a bidding war
When two or more parties are competing for a seller’s approval, the result is usually a bidding war. It’s not as frightening as it sounds, but it can certainly be stressful without a skilled agent and some personal experience on your part.
To come out on top in a bidding war, Realtor.com suggests that you have a clean offer, which means few contingencies and compressing the contingency timeline. Cash is king, and sweetening the pot with cash can work wonders, but you might be surprised at the effectiveness of cooperation and flexibility. Buyers who can meet a seller halfway often come out on top, even without the most financial muscle. Having an experienced agent in your corner will help.
Selling could get harder, too
While the market now generally benefits anyone selling a home, there is a lot of uncertainty and a variety of unknowns in the current housing market. In many cities, buyers are still facing stiff competition due to housing shortages, but we don’t know how long this could last.
To alleviate at least some of the stress, buyers should make a list of priorities and stick to them heading into their search. Start the list with features that are absolutely needed, like a number of bedrooms or a two-car garage, followed by things that are nice but not essential. Sellers, meanwhile, should be prepared to juggle multiple offers all at once. This may also require a list of priorities of what to look for from an offer: Would you prefer to make more money on the deal? Or is it more important to sell quickly?
Real estate transactions have never been easy, and they are even more hectic during a global pandemic. However, if you do some preparation beforehand and stay up to date on state and local regulations, you could find that right now is still a great market to buy and sell in. ‘
Diane Hughes is senior vice president, Mortgage Lending Director at UMB Bank and can be reached at [email protected].