Expect a real estate roller coaster in the coming months
It’s been a great time to buy a house.
Starting in mid-2019 and extending through early 2020, low rates lead to record affordability. Buyers saw their home buying budgets growing, and their monthly payments shrinking.
Rates even hit record lows in early March.
But that record — largely driven by coronavirus — was just the first in a series of unprecedented moves in the mortgage industry.
We’re seeing that what’s “good” for rates can be bad for lenders, and what’s “good” for the market can be bad for home buyers.
It’s a confusing time — which is why it’s difficult to answer the question “Is it still a good time to buy a house?”
Here’s what we learned from the experts.Verify your home buying ability (Sep 22nd, 2020)
Mixed signals from the housing market
Looking at home sales, the latest data (for February) shows the highest jump in home sales in over 10 years.
Low mortgage rates have made home buying an attractive prospect over the past several months.
In fact, 30-year mortgage rates hit a record low in early March, giving lots of potential home buyers the kick they needed to finally make their move.
But experts expect a major sales plunge to come.
First off, because rate movements and COVID-19 have really shaken the mortgage market, with unexpected consequences:
- Rates have crept up lately, partly because mortgage lenders are overwhelmed with business and raising their rates in response
- It’s taking a lot longer to close, again thanks to the higher volume of new mortgage applications
- Lenders are having a hard time closing new loans, staff are laid off or working from home, and COVID environment makes things like appraisals difficult
- Economic uncertainty has forced lenders to stop making “riskier” loans (more on that below)
What’s more, many prospective purchasers are worried about being laid off temporarily or long-term. Many don’t want to take the risk of buying a home they won’t be able to afford.
This is true even though the government is making it easier to have your mortgage payments reduced or suspended for up to 12 months.
Also, many title companies and state, county, and local governments are closing their offices; that has put many mortgage closings in limbo.
And plenty of sellers are nixing open houses while real estate agents are conducting more remote house tours.
A buyer’s market could be coming for some
Peggy Zabakolas is an attorney and broker with Nest Seekers International. She says that with massive layoffs possibly coming, we may see a lot of housing inventory coming to market in the next few months at more accurate pricing—making it a buyer’s market.
“If you have the cash on hand and a flexible timeline on closing, all the stars may be aligned for you to make a purchase. If you have the required down payment and solid job security, there’s no reason you shouldn’t take advantage of low mortgage rates,” she says.
We may see a lot of housing inventory coming to market in the next few months at more accurate pricing—making it a buyer’s market.
Matthew Yu, vice president of Socotra Capital, agrees.
“Any buyers who have strong cash reserves and an essential job—such as in health care or as a first responder—would be in a good position to buy,” notes Yu.
Michael Mesa is a Certified Mortgage Planning Specialist with Land Home Financial Services. He says that, despite the pandemic, the housing supply is still short in many markets but many shoppers have decided not to buy.
“That potentially means that a serious, preapproved buyer may actually have less competition and a more level playing field when it comes to offers and closing cost concessions,” explains Mesa.
“…a serious, preapproved buyer may actually have less competition and a more level playing field when it comes to offers and closing cost concessions.” –Michael Mesa, Certified Mortgage Planning Specialist
Also, financially secure first-time buyers and investors may find the timing ideal right now.
“They may be at an advantage because they’re not concerned about selling their current home. And they may not have a strict timeline on a closing date,” Zabakolas says.
But for others, not so much
If your job is vulnerable to a layoff or your finances are already stretched thin, “it is never a good gamble to purchase a home,” Mesa adds.
Other prospects who probably shouldn’t buy a home include buyers who have commissioned jobs or non-essential jobs in this economy, says Yu.
People who run the risk of not being able to pay their mortgages have the most to lose.
These people “run the risk of not being able to pay their mortgage. They have the most to lose,” notes Yu.
“With market uncertainty, people are losing jobs and the economy is in free fall. There may be better buying opportunities at the end of this crisis.”
“Prime” mortgage borrowers have the best chances at financing
Up until now, we’ve mostly talked about the housing market. But for most prospective homebuyers, the mortgage market is equally critical. Few buyers can purchase a home without financing.
But the mortgage market, like most other sectors of the economy, is in turmoil right now. Coronavirus has created plenty of issues for lenders that in turn influence home buyers’ chances of getting a loan. For instance:
- Almost all non-QM lending was recently halted for at least two weeks — making it difficult or impossible to get jumbo loans, bank statement loans, high-DTI loans, low-credit score loans, and more
- Lenders are also restricting government-backed loan programs (FHA, USDA, and VA) for the time being — higher credit score requirements, will make these loans inaccessible for some borrowers
So even if it’s a good time for you to buy a house, the financing you need might not be readily available.
You’re likely to have the best chances at getting financing right now if you fit into the “conforming” loan box — with a high credit score, low debt, large down payment, and steady income.
That doesn’t mean you shouldn’t still try to find a loan if you have special considerations (like a high debt-to-income ratio or low credit score). But don’t be surprised if the selection is limited.
You might have better luck (and more favorable rates) if you wait until the market has stabilized.
The real estate market may get worse before it gets better
It’s impossible to accurately predict how things will shake out. But experts offered their predictions.
J. Keith Baker is the Mortgage Banking Program coordinator and faculty at North Lake College. He believes that if we go past 90 days of business shutdowns and containment, a recession is likely coming.
If we go past 90 days of business shutdowns and containment, a recession is likely coming.
“If we go past 90 days before ordinary people go back to life at least 80% of where it was before COVID-19, it will have a profoundly negative effect on the housing market,” Baker says.
Yu believes the economy will take at least two months to recover from a setback like the coronavirus.
“Even then, the lingering virus will create uncertainty in many local economies,” cautions Yu.
“Mortgage rates will continue to be low until a recovery is in full swing. However, expect lending to be more restrictive. That’s because lenders don’t want to take on any non-performing loans.”
There may be a silver lining — if you have patience
Some possible good news? Yu believes mortgage rates should drop again in a few weeks once the rush of refinances is closed out.
“I would expect rates to go down again,” Leslie Shull, an assistant professor of real estate at Sacramento City College, says. “I believe lenders are going to want to bring in purchase volume once the virus has cleared and more shoppers are back out looking.”
What’s more, home prices may go down in the months to come as we swing more into a potential buyer’s market.
“I believe housing prices will dip a bit but most likely flatten a little with lower appreciation,” Mesa says.
Lastly, Zabakolas expects an increase in buyers later this year due to pent up demand. Many of these buyers could be looking for bigger homes.
“The work-from-home experiment is working for a large number of individuals. This will mean the need for a home with more office space sometime in the future. Plus, there will be more families who want to move elderly loved ones in with them,” says Zabakolas.
In other words: A buyer’s market could be coming in a big way. But it will take some time to get there.
Homebuyers who have patience could potentially reap big rewards a few months down the line.Verify your new rate (Sep 22nd, 2020)