Hold On to Your Hats! How the Coronavirus Has Changed the Home-Buying Game This Winter
Winter is typically a buyer’s market. Between the chilly weather and the holidays, homes for sale often sit much longer without offers, which means that the few buyers who do venture out are poised to have the upper hand with sellers and get a great deal.
Yet this winter, buyers might not have it so easy.
“Normally winter is a good time for buyers,” says Danielle Hale, chief economist at realtor.com®. But the coronavirus pandemic has upended normal real estate patterns by keeping buyers at home last spring. This, in turn, has created a pent-up demand for homes that's only now hitting the market, hard.
The upshot? Buyers home shopping this winter may face plenty of competition.
“It’s unusual times,” agrees Lawrence Yun, chief economist at the National Association of Realtors®. “Normally buyers have a slight edge as homes sit on the market for a longer period. It’s likely to be different this year.”
Yet even though this winter is slated to be a seller's market, it's not all bad news for buyers.
“Buyers will have their opportunities as well," Hale says.
If you’re planning to buy a home this winter, here’s a crash course on what to expect, the challenges you'll face, plus a couple of bright spots that make it well worth venturing out there if buying a home is on your wish list this year.
Housing inventory is low
This winter, there will be fewer homes on the market than usual. According to realtor.com’s Monthly Housing Market Trends Report, national home inventory was 39% lower in September 2020 than last year, and the number of newly listed homes dropped 13.8%.
With more buyers than sellers in the market, homes aren't lingering on the market for long. In September, homes nationwide spent an average of 54 days on the market, 12 fewer days than last year.
So, buyers need to be prepared. That means getting your mortgage pre-approval paperwork in place so you can make an offer fast.
Distressed properties may soon hit the market
Although housing inventory is low—which is bad news for buyers—experts say this shortage could improve under certain conditions. For one, if coronavirus rates remain low in a community, sellers who've been leery about inviting buyers into their home might decide it's safe enough to give it a try.
“Even though inventory will remain low, we could see a slight improvement as sellers gain more confidence in the housing market,” Hale says.
Another factor to consider is the economy. If unemployment rises, more people may be forced to sell their homes. And according to the Mortgage Bankers Association, more than 3 million homeowners, or 7.1%, missed their mortgage payment in September.
“Could this possibly mean we could start to see distressed properties hitting the market in the future?” says Tracy Jones, a real estate agentwith Re/Max Platinum Realty in Sarasota, FL. “That could be helpful to buyers struggling to find something affordable.”
Mortgage interest rates are low
2020 has been a year full of challenges, but one upside is that mortgage interest rates have remained at historic lows for several months. As of Oct. 22, interest on a 30-year fixed-rate loan was 2.8%, according to Freddie Mac.
“Buyers don't necessarily have the upper hand in the housing market this winter, but they do have some advantages,” Hale says. “The biggest pro for buyers is that mortgage rates are likely to remain at or near record lows."
Low rates can save you thousands of dollars on the life of your loan. For example, say you’re purchasing a $400,000 home. Snagging a 2.875% interest rate—instead of 4.375%—would save you about $26,400 in the first five years of your mortgage and $109,300 over 30 years, according to the Consumer Financial Protection Bureau.
“Lower interest rates means lower repayments, so your capacity to pay down a loan theoretically increases,” says Shelby McDaniels, channel director of corporate home lending at Chase.
You can buy a bigger house
Low interest rates don't only mean buyers pay less for a house. In addition, "it means that buyers can target a higher home price than would have been the case last year," Hale says.
The possibility of being able to afford a larger, more expensive home probably sounds particularly appealing right now to buyers who are likely spending more time at home and may be rethinking their living spaces.
“Because of low interest rates, now is a good time to upsize due to your changing needs, such as working from home,” says McDaniels. “If you have the ability to work from home and not drive to a specific office location, you can also change locations and move to a rural area or less expensive market.”
It may be cheaper to buy than rent
Due to low mortgage rates, it could be cheaper—or about the same—in the long run to buy a home rather than paying rent. According to a realtor.com report, in the first quarter of 2020, the median monthly cost to purchase a home was $1,584, compared with $1,391 to rent.
Rents may be going up in some places, too. In September 2020, the median rent in the country’s 100 largest counties dropped 0.5% for a studio apartment compared with last year, but went up 1% for a one-bedroom home and 2.3% for a two-bedroom, according to the realtor.com September Rent Report.
“Expensive rent or limited rentals available may make now a good time to consider a longer-term investment such as a home,” McDaniels says.
All that said, prices to rent or buy vary by area, so it's smart to compare those costs by checking a rent vs. buy calculator for your neighborhood. You should also consider how long you plan to stay put. If you might move soon, then renting might be the better option.
Virtual home tours are now the norm
As the coronavirus crisis continues, safety will remain a priority for buyers and sellers. And the real estate industry has adapted in various ways to limit your exposure to COVID-19.
For one, rather than touring homes in person, many buyers today may prefer to view them online—and many listings include not just photos, but full-blown virtual tours, in video or 3D, that give you a good sense of a home without your needing to set foot inside.
In such a competitive market, the ability to view homes virtually lets you be more strategic in your house hunt. That way, you can set up in-person viewings at only the homes that truly interest you.
Courtesy of HouseLogic