Spring is usually a time where the homebuying season comes out of a state of winter hibernation and picks up again. But this year things look a little (or A LOT) different than anything we've seen before, thanks to the COVID-19 pandemic.
Fear and unknowns around the globe have been growing and spreading faster than the Coronavirus itself. Many of us are wondering, "what's next?" Is the housing market going to collapse like it did in 2008? Is now the time to buy a first home or simply hunker down and wait for the economy to rebound?
While we don't know how long we'll be dealing with the impacts of this pandemic, we can still pay attention to what's happening in the housing market and keep an eye out for the best investment opportunities during these unprecedented times.
Just because others may be panicking and putting off any big financial moves, doesn't mean you should be following suit.
Recent Coronavirus Impacts to the Housing Market
During past pandemics, home prices stayed about the same or saw a slight decrease, according to a recent study by Zillow. While there may be fewer deals happening right now, the coronavirus hasn't negatively affected the housing market yet. That may be because more people will want to live in single family homes with yards if the "Stay at Home" orders last for a longer time than expected.
With the Fed cutting mortgage interest rates again, a lot of homeowners are trying to refinance their current mortgages to take advantage of these lower rates and ease their mortgage payment burden.
But how can current renters and hopeful first-time homebuyers make the most out of our current situation? And is now the time to buy with these low interest rates?
Next are three trends to help decide if now is the time to buy your first home…
Not Much Competition
We were already experiencing an affordable housing shortage in many markets across the U.S. before COVID-19 hit. Now we're facing record lows in terms of homes for sale.
Before the pandemic, we had all the indicators of a healthy and growing economy. All signs pointed to a high demand of homebuyers this spring: low unemployment, steady wage growth, and low interest rates. Demand was high, inventory low and seller's had the upper hand.
Today, the Coronavirus is scaring many people away from spending money and investing, let alone buying or selling a home. In fact, NAR performed a survey in mid-March showing a 48 percent dip in home buyer interest along with a decrease in for-sale houses.
Although we expect home prices to hold steady in some markets, there will undoubtedly be other places that will experience a drop in home prices along with a rise in unemployment. Jumbo loans for higher end properties are virtually non-existent now, so we expect price reductions for properties over $800,000.
Home Prices Should Drop in Certain Markets
There are certain markets that will see a bigger real estate slump than others, and it primarily has to do with their job base. For example, Las Vegas is largely dependent on tourism, and we know that has come to a complete standstill. New Orleans and Miami could have the same fate. These areas may offer a great opportunity for home buyers to acquire homes at a discount in the future.
However there are other markets where prices may stay the same or rise. Cleveland, Ohio, for example, has a large health-care industry, so business is booming. Indianapolis also has a very large biotech industry that is on the leading edge of finding a cure and developing much-needed test kits. Plus, Indy also has the 2nd largest hub for FedEx, and we know distribution services are growing.
Will High Unemployment Rates Force Distressed Homeowners to Sell?
Unemployment rates have drastically jumped throughout the country with millions of workers facing layoffs. Just this week, the Fed predicted that the U.S. unemployment rate could surpass Great Depression levels (24.9 percent) and reach 32 percent. Leaving as many as 47 million Americans unemployed.
With the recent moratorium on foreclosures issued by the federal government, FHA-backed mortgage-holders should feel some relief. But what's going to happen to mortgage servicers when this pandemic finally comes to an end? They'll have to come up with ways to get their missing or reduced mortgage payments. We don't know how that may impact the housing market, but we do know lenders learned from 2008. They do not want to flood the market with foreclosures again. It's therefore possible they will look at forbearance options or even turn owner-occupied homes into rentals.
Home prices may start to decline as lenders pull back on lending. And some homeowners may be forced to sell their homes, at below-market prices, just to stay afloat during these tough times.
Low Mortgage Interest Rates
Mortgage interest rates should remain low, at least for now. Just last year (feels like another lifetime), interest rates on a 30-year fixed mortgage were over 4 percent. Right now, interest rates on a 30-year FHA loan are 3.2 percent and short-term loans are even less. Investors looking to acquire rental properties could see cash flow increase due to these low rates.
Should I Consider a 15-Term Mortgage Loan?
On average, interest rates on 15-year mortgage loans dropped below 2 percent. If you can afford higher monthly payments, now may be a good time to get a 15-year, fixed-rate mortgage at a cheap rate. You'll also pay off your loan faster, accruing less interest over time.
Technology Makes it Possible to Buy a Home Right Now
The Coronavirus pandemic has forced millions of employees to set up shop and work remotely from home. Thankfully, the Internet and advanced technology has allowed us to come up with solutions to minimize or eliminate in-person interaction.
Industries are taking advantage of tech options to continue operating during these weird times. Just like teachers are now virtually teaching their students, real estate agents can take clients on virtual tours of prospective homes using FaceTime or Zoom. Closings are being done online and it's business…somewhat as usual.
While the number of real estate deals may be slowing down, it's still very doable, and even pretty easy to still search for and buy a great first-home via technology.
If you have money saved up already and a steady income stream, now might be the perfect time to buy your first home. Prices aren't expected to rise for a while and may even go down in some areas. Plus, there's not as much competition, and interest rates remain very low. It's the perfect storm for those looking to buy.
And for people looking to become real estate investors, typically the demand for rental properties increases during a recession. This could be a great opportunity to acquire a rental property at discounted pricing, lock in a low interest rate, and provide a quality home for a family.
If you're still not sure that buying a home is the best place to invest money right now, there are plenty of other options and opportunities out there. You just have to know what to look for.