Real Time Heads-up for Real Estate Investors
Due to the crazy consequences brought forth by the coronavirus, markets have become uncertain and very unpredictable. The real estate market is challenging this second half of 2020 — all the more so because lenders are checking, and rechecking borrowers’ finances in response to the economic turmoil of the pandemic.
Demand, which was pent up during coronavirus stay-at-home orders, and a shortage of homes for sale are keeping prices high and setting off bidding wars in some areas as some states continue to reopen for business. Some buyers may also find it tougher to qualify for mortgages, as lenders will require higher credit scores and bigger down payments in response to higher unemployment and economic uncertainty in the pandemic.
The COVID-19 pandemic may be hitting the economy hard, bringing the highest national unemployment rate since the Great Depression, but median home prices defied the odds and jumped 3.1% year over year last month. In April 2020, home prices grew by a teeny-tiny 0.6% compared to last year—down from the nearly 4% growth rate in March. But within the third week of May, home prices moved their way back up to a 3% growth rate—almost to pre-COVID levels. So there’s a chance that home prices might be regaining some momentum.
National Association of Realtors Chief Economist Lawrence Yun believes home prices will make their way back up to 4% growth overall in 2020. So, we are likely to see home prices continue to creep up, but they probably won’t show off with rapid growth like we’ve seen in the previous years.
Sellers Perspective on Higher Prices
Be aware of your competition. That’s the new name of the game.
An appealing profit may be on the horizon but also keep in mind that many buyers are being priced out of the market at the moment, which could lead to fewer offers for your home. With less offers to become available, you want your home to really stand out from similar ones in your specific area. Prepare your home for potential home buyers and work with a real estate agent to help you list your home at the right price.
At this point, patience is really a virtue so make sure to wait for the right offer. Some buyers may try to gut punch you with a low number. If you aren’t in a hurry to move, wait for an offer that gives you the most profit. Remember, the less desperate person always has the upper hand when negotiating. As they always say, “negotiate from a position of strength”.
Buyers Perspective on Higher Prices
If you’re going to buy a home in today’s expensive market, you absolutely must find out how much house you can really afford. Crunch your own numbers yourself and figure out a monthly payment your budget can handle. Commit to staying within that budget amount. Don’t rush into a home purchase that doesn’t make financial sense for you no matter how much pressure you feel watching competitors pluck good homes off the market over and over. You could screw up your finances if you give in to temptations.
If you can’t put down at least 10–20% on a 15-year fixed-rate conventional loan, then you probably can’t afford a house in this market. A down payment that’s less than 10–20% will strangle your budget with massive monthly mortgage payments. But if you want to get on board in buying and you’re committed to your budget, here are some aspects to consider:
- Sacrifice some of your wants. If you can’t afford to buy the house you want, be willing to give up some “nice-to-haves” for your “must-haves.” Needs must always come first before wants. Look for the least expensive home in the best neighborhood you can afford and you can upgrade as your income and savings increase over time.
- Keep saving. If you stay patient and motivated, you can save for an even better figure payment by this time the following year.
- Expand your search. Is the location where you’re planning to buy busting your budget? You might be surprised at the privilege you can feel in a less popular neighborhood. Working with a real estate agent who really knows the area is the best way to find a home that fits your budget and lifestyle.
Buying a home can be stressful, but our It’ll help you think through all the important parts so you can rest easy when your dream home is officially yours.
Home Prices Up, Home Sales Down
Mortgage rates may be appealingly low, but interested buyers shopping for a new home this second half of 2020 face a challenging market.
The situation is different from the economic downturn in 2008’ global recession, when home prices fell deeply almost at the rock bottom. According to a report from the National Association of Realtors, the median price for a home, excluding new construction, was about $287,000 in April, up more than 7 percent from a year earlier.
Housing supply was already tight in recent years, especially for first-time buyers, because of the slow-moving pace of new construction. Then, uncertainty because of the pandemic gave buyers cold feet, leading some sellers to hesitations by pulling out their homes from the market.
Home sales in April were down about 18 percent from a year earlier. Now, with many states lifting restrictions on home tours, the housing market is reawakening. Shoppers are feeling more comfortable visiting properties: While most at buying properties without visiting them first, that has sometimes been necessary during the pandemic, while traditional open houses are returning in some markets. Some property owners still prefer that shoppers make appointments. Buyers who sign up for the first available slots get to make the first offers, leaving those with later appointments out of sheer luck.
One problem is that some sellers are reluctant to put their homes on the market because they worry they won’t be able to find a new property for themselves and will have to rent while they shop. In some cases, homeowners who were planning to sell have decided to remain where they are and renovate instead, adding home offices because they expect to commute less.
As long as home sales are down due to new-home shortage and seller hesitations, the home prices will remain high and will likely continue climbing up the ladder until the end of 2020. It’s up to the real estate sellers and buyers to delicately gauge their situations, motivations and goals to make a big decision for their real estate investment especially in this time of post-pandemic environment.
Disclaimer: The blog articles are intended for educational and informational purposes only. Nothing in the content is intended as legal or financial advice.
Reports from National Association of REALTORS®