Is This the Time to Buy or Sell Real Estate?

Originally Posted on 4/6/2020

Spring is traditionally one of the busiest times of the year for real estate. The coronavirus outbreak and the subsequent stay-at-home orders led many buyers and sellers to put their moving plans on hold. This April, new listings fell by almost 45%, and sales volume fell 15% compared to the previous year.¹

Fortunately, we’ve seen an uptick in market activity as restrictions have been lifted. Furthermore, economists at Realtor.com expect a rebound in July, August, and September, as fears about the pandemic subside, and buyers return to the market with increased demand from a lost spring season.²

But is it the right time to jump back into the real estate market, given the safety concerns and the current economic climate?

It is crucial to consider where the housing market is headed before you decide. How will it impact your timeline and ability to buy a home, and your own individual needs and circumstances?

What Does the Future of the Housing Market Look Like?

The economic effect of the coronavirus outbreak has been severe. Record unemployment numbers and economists believing that the country is headed toward a recession. However, people still need homes. So what effect will these factors have on the housing market?

Home Values Are Projected to Stay Stable

Many Americans still remember the last recession and expect to see another drop in home values. The difference between then and now, however, is that in 2008 the real estate market crash was the cause of the recession, not its result. ATTOM Data Solutions analyzed real estate prices during the last five recessions and found that home prices went up during most recessions. Only twice (in 1990 and 2008) did prices fall, and in 1990 the drop was less than one percent.³

Many economists expect home values to remain relatively steady this time around. And so far, that’s been the case. As of mid-May, the median listing price in the U.S. was up 1.4% from the same period last year.⁴

Demand for Homes Will Exceed Supply

The market has seen a shortage of affordable homes for many years, this situation has worsened during the pandemic. In addition to sellers pulling back, new home starts fell 22% in March.⁵

In this context, it is noteworthy that Fannie Mae doesn’t foresee a return to pre-pandemic construction levels before the end of 2021.⁶

This supply shortage is expected to prop up home prices, despite a potential recession. Fannie Mae and the National Association of Realtors predict housing prices will rise slightly this year⁷, while Zillow expects them to fall between 2-3%.⁸ Still, that would be a far cry from the double-digit declines that occurred during the last recession.⁹

Which prediction will come true? Only the future will tell, but the fact remains that the housing market is quite strong.  There likely will be many short sales and foreclosures in the next 12 to 24 months caused by the high unemployment rate, but the market as a whole should remain stable.

Government Intervention May Help Stabilize the Market

Policymakers have passed legislation aimed at preventing a surge in foreclosures, as we saw in 2008. The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress gives government-backed mortgage holders who were impacted by the pandemic up to a year of reduced or delayed payments.¹⁰

The Federal Reserve has also taken measures to help stabilize the housing market, lower borrowing costs, and inject liquidity into the mortgage industry. These steps have led to record-low mortgage rates that should help drive buyer demand and make homeownership more affordable for millions of Americans.¹¹

Why do I think we will see a surge in short sales and foreclosures then? Because 40 million Americans had filed for unemployment by the end of May 2020¹². Some will be able to return to their old jobs, but many will find that the company they once worked for no longer exists. For many of these people, there will only be two options: Short sale or foreclosure.

Most homeowners will pull through, and mostly prices will undoubtedly remain stable, but it is nearly unavoidable that quite a few Americans will lose their homes because of this pandemic.

In What Ways Has the Real Estate Market Changed?

To keep clients and staff safe, real estate and mortgage professionals across the country revised their processes as the pandemic hit. For some, these 'new' new ways of conducting business seemed strange at first. However, military clients, international buyers, and others have utilized these methods to buy and sell homes for years.

The Safety Procedures

As mentioned above, the safety of our clients and our team members is our top priority. That's why we've developed processes for buyers and sellers that utilize technology to minimize personal contact.¹⁴

We are now holding online open houses, offering virtual viewings, and conducting walk-through video tours. Video chat has become a tool to qualify interested buyers before we book in-person showings. This enables us to promote your property to a broad audience while limiting physical foot traffic to only serious buyers.

Likewise, our buyer clients can view properties online and take virtual video tours to minimize the number of homes they step inside. Ready to visit a property in person? We can decrease surface contact by asking the seller to turn on all the lights and open doors and cabinets before your scheduled showing.

The majority of our 'paperwork' is also digital. In fact, many of the legal and financial documents involved in buying and selling a home went online years ago. You can safely view and electronically sign contracts from your smartphone or computer.

Longer Timelines and Higher Mortgage Standards

The real estate process is taking a little longer these days. Both buyers and sellers are more cautious when it comes to viewing and showing homes. And with fewer house hunters and less available inventory, it can take more time to match a buyer with the right property.

In a recent survey, 67% of Realtors also reported delays in the closing process. The top reasons were financing or buyer job loss, but appraisals and home inspections are also taking more time due to shifting safety protocol.¹³

Securing a mortgage may take longer, too. With forbearance requests rising, lenders are getting increasingly conservative when it comes to issuing new loans. Many are raising their standards, requiring higher credit scores and larger down payments. Prepare for greater scrutiny, and build in some extra time to shop around.¹³

Is It the Right Time to Make a Move?

There's no 'right' answer as to whether it's a good time to buy or sell a home because everyone's circumstances are different. But now that you know the state of the market and what you can expect as you shop for real estate, consider the following:

Why do you want or need to move?

It's important to consider why you want to move and if your needs may shift over the next year. For example, if you need a larger home for your growing family, your space constraints aren't likely to go away. In fact, they could be amplified as you spend more time at home.

However, if you plan to move closer to your office, consider whether your commute could change. Some companies are rethinking their office dynamics and may encourage their employees to work remotely permanently.

How urgently do you need to complete your move?

If you have a new baby on the way or want to be settled before schools open in the fall, we recommend that you begin aggressively searching as soon as possible. With fewer homes on the market and a lengthier closing process, it's taking longer than usual for clients to find and purchase a home. 

However, if your timeline is flexible, you may be well-positioned to score a deal. We're seeing more highly-incentivized sellers who are willing to negotiate on terms and prices. Talk to us about setting up a search so we can keep an eye out for any bargains that pop up. And get pre-qualified for a mortgage now so you'll be ready to act quickly.

If you're eager to sell this year, now is the time to begin prepping your home. The second wave of infections is predicted for the winter, which could mean another lockdown.¹⁵ If you wait, you might miss your window of opportunity.

How long do you plan to stay in your new home?

The U.S. real estate market has enjoyed steady appreciation since 2012, making it relatively easy for owners and investors to buy and sell properties for a profit in a short time. However, with home values expected to remain relatively flat over the next year, your best bet is to buy a home you can envision yourself keeping for several years. Fortunately, at today's rock-bottom mortgage rates, you can lock in a low interest rate and start building equity right away.

Can you meet today's higher standards for securing a mortgage?

Mortgage lenders are tightening their standards in response to the growing number of mortgage forbearance requests. Many have raised their minimum credit score and downpayment requirements for applicants. Even if you've been pre-qualified in the past, you should contact your lender to find out if you meet their new, more stringent standards.

Is your income stable?

If there's a good chance you could lose your job, you may be better off waiting to buy a home. The exception will be if you're planning to downsize. Moving to a less expensive home could allow you to tap into your home equity or cut down on your monthly expenses.

When You Are Ready to Move - We are Ready to Help!

While uncertain market conditions may give pause to some buyers and sellers, they can actually present an opportunity for those who are willing, able, and motivated to make a move. 

Your average spring season would be flooded with real estate activity. But right now, only motivated players are out in the market. That means that if you're looking to buy, you're in a better position to negotiate a great price. And today's record-low mortgage rates could give a significant boost to your purchasing power. If you've been priced out of the market before, this could be the perfect time to look.

If you're hoping to sell this year, you'll have fewer listings to compete against in your neighborhood and price range. But you'll want to act quickly. Economists expect a surge of eager buyers to enter the market in July, so you should start prepping your home. And keep in mind, the second wave of coronavirus cases could be coming in this winter. Ask yourself how you will feel if you have to face another lockdown in your current home.

Let's schedule a free virtual consultation to discuss your individual needs and circumstances. We can help you assess your options and create a plan that makes you feel both comfortable and confident during these unprecedented times.

The above references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.

Sources:

1. Forbes - https://www.forbes.com/sites/ellenparis/2020/05/08/latest-housing-market-update-from-realtorcom/#20bf7829113e
2. HousingWire - https://www.housingwire.com/articles/realtor-com-housing-market-will-bounce-back-this-year-but-the-rebound-will-be-short-lived/
3. Curbed - https://www.curbed.com/2019/1/10/18139601/recession-impact-housing-market-interest-rates
4. Realtor.com - https://www.realtor.com/research/weekly-housing-trends-view-data-week-may-9-2020/
5. Money.com - https://money.com/coronavirus-real-estate-home-prices/
6. Fannie Mae - https://www.fanniemae.com/resources/file/research/emma/pdf/Housing_Forecast_051320.pdf
7. HousingWire - https://www.housingwire.com/articles/pending-home-sales-tumble-on-covid-19-shock/
8. HousingWire - https://www.housingwire.com/articles/zillow-predicts-small-home-price-drop-through-rest-of-2020/
9. Federal Reserve Bank of St. Louis - https://fred.stlouisfed.org/series/CSUSHPINSA
10. Consumer Financial Protection Bureau - https://www.consumerfinance.gov/coronavirus/cares-act-mortgage-forbearance-what-you-need-know/
11. Bankrate - https://www.bankrate.com/mortgages/federal-reserve-and-mortgage-rates
12. Forbes – https://fortune.com/2020/05/28/us-unemployment-rate-numbers-claims-this-week-total-job-losses-may-28-2020-benefits-claims-job-losses/
13. National Association of Realtors - https://www.nar.realtor/sites/default/files/documents/2020-05-11-nar-flash-survey-economic-pulse-05-14-2020.pdf
14. Forbes - https://www.forbes.com/sites/alyyale/2020/04/17/buying-a-home-during-the-pandemic-dont-expect-your-everyday-home-purchase/#fadad3d33b0c
15. Washington Post - https://www.washingtonpost.com/health/2020/04/21/coronavirus-secondwave-cdcdirector/