Spring is traditionally one of the busiest times of the year for real estate. With the coronavirus outbreak and subsequent stay-at-home orders many individuals have put their plans to buy or sell on hold. April saw a 45% drop in new listings and a 15% drop in the number of homes sold compared to April 2019.1
Fortunately, as restrictions have eased, home sales have picked back up. Many economist expect a complete rebound in July, August and September, as fears about the pandemic subside. If all of the buyers who held out during the spring return to the market this could cause a large amount of pent-up demand.2
Given the current climate of the economy and potential safety concerns is jumping back into the real estate market right now advisable?
For you to make that decision it’s important to consider your specific needs and circumstances as well as understanding what’s likely ahead for the housing market and how it could impact your decision and your ability to buy a home.
OUTLOOK FOR THE HOUSING MARKET?
In the aftermath of the coronavirus outbreak the economy has taken a severe hit. There are record numbers of unemployment, and experts believe we are headed towards a recession if we’re not already in one. However people will always need a place to live. What impact will all these influences have on housing?
Home Prices Projected to Remain Stable
Americans recall the recession of 2008 and assume home prices will drop significantly as they did then. However in 2008 the real estate market crash was the cause of the recession no the result. Looking at information from ATTOM Data Solutions regarding the prices of home for the last five recessions shows that home prices increase in three of the five recessions. The only other time, besides 2008, that saw a decline in home prices was in 1990 and then there was only a one percent decline.3
Many economist expect home prices to remain relatively steady during this down turn. The early numbers back up those assertions. As of mid-May, the median listing price in the U.S. was up 1.4% from the same period last year. In Austin we’ve seen a more pronounced increase with the median sales price up 3% in April from last year.4
Demand Will Continue to Exceed Supply
Affordable homes have been in short supply for years in the market and the pandemic only compounded the supply issues. Sellers not only delayed putting their homes on the market but new home starts from builders fell 22% in March.5
In fact, Fannie Mae doesn’t foresee construction levels returning to pre-pandemic levels before the end of 2021.6
The shortage of supply will prop up home prices despite the fact that recessionary factors might reduce the number of home buyers. Predictions on what home prices will do nationwide the remained of the years range from slight increases from Fannie Mae and the National Association of Realtors7 to more pessimistic views, with a decline of 2-3%.8 expected from Zillow. Even the most pessimistic projects would be a far cry from the double-digit declines that occurred in the last recession.9 Austin is in a stronger position than the national housing market. The pandemic and economy slowdown have not been as severe here and the increase in home prices even while the number of sales has slowed down are a strong indicator that that prices will continue to rise throughout the year.
Government Intervention Will Help Stabilize the Market
The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress gives government-back mortgage holders who were impacted by the pandemic up to a year of reduced or delayed payments.10 You should consult your real estate or mortgage professional prior to applying for this assistance however; as it could have an impact on your ability to purchase or refinance a home in the immediate future. Legislation like this has been pass specifically to prevent mass foreclosures like we saw in 2008 and policymakers have reacted quickly to make sure these measures have the largest impact.
The Federal Reserve has lowered borrowing costs and injected unprecedented amounts of liquidity into the economy and the mortgage industry. This has led to mortgages rate falling to record lows which will make homes more affordable to millions of Americans and subsequently increase demand from buyers.11
HOW HAS THE REAL ESTATE PROCESS CHANGED?
Real estate and mortgage professionals across the country adjusted their procedures and processes as the pandemic hit to adapt to the shifting safety standards and economic realities. Moving to a more virtual experience may seem strange initially but international buyers, military clients and many others who have been relocating to Austin have been utilizing these tools for years.
The safety of our clients and team members is our top priority. That’s why we’ve been relying more on technology during the buying and selling process for our clients to minimize personal contact.
With listings you may have seen online open houses. This experience allows virtual viewings and one-on-one walk-through tours with potential buyers where questions can be answered and the entire house explored. Video chats are also used to qualify interested buyers before booking in-person showings. All of this technology allows your home to be promoted to a wide audience while limiting the physical foot traffic to serious buyers only.
Similarly for buyers virtual showings and video tours can minimize the number of homes they need to step inside and decrease the amount of time spend previewing homes. Ready to visit a property in person? Steps are taken to decrease contact with surfaces by asking the seller to open doors and turn on lights before arriving to the house.
Paperwork has gone mostly digital years ago with most of the legal and financial documents involved for buyers and sellers to sign done via eSignature from a computer or smartphone.
Higher Mortgage Standards and Longer Timelines
The process of buying and selling real estate is taking longer these days, with caution coming from both buyers and sellers. With fewer home available in the market it can take more time to match a buyer with the right property. However the amount of time a home stays on the market in Austin has decrease 23% from April 2019 to April 2020. This means buyers are having to make quicker decision when they see a property they like.
In a recent survey, 67% of Realtors reported delays in the closing process. While there have been delays in the appraisal and home inspection process due to increased safety protocols12 the top reasons where due to the added scrutiny during financing. With forbearance requests rising, lenders are becoming increasingly conservative when they issue new loans. Many are raising standards with higher credit scores and larger down payments required. You should be prepared for greater scrutiny as well as build in extra time needed for the lender to secure financing and closing to happen.13
IS NOW THE RIGHT TIME FOR YOU TO MAKE A MOVE?
There is no “one size fits all” answer when it comes to buying or selling a home because everyone situation is unique. Now that you know the state of the market and what you can expect consider the following questions:
Why do you want or need to move?
Why you are considering moving is critical to understanding if now is the right time for you and if your needs or reasons may shift over the next year. For example if you need more space for your growing family then your space constraints are only likely to amplify moving forward and finding a larger home will bring many benefits.
However if you’ve been planning to move closer to work consider how your schedule and commute might change. Companies are re-analyzing their office dynamics and may encourage employees who have been working from home to work remotely more often permanently.
How urgently do you need to move?
If you are starting a new job, have a baby on the way or want to live in a specific neighborhood you want to begin searching for homes as soon as possible. With fewer homes on the market and a longer closing process, it takes clients longer than anticipated to find and purchase a home.
Thinking of selling this year? Now is the time to prep your home. Low inventory levels mean that you’re in an advantageous position plus predictions for a second wave of infections this winter could mean another slowdown in interested buyers.14 If you wait you might miss your window of opportunity.
How long do you plan to own your new home?
The U.S. real estate market has enjoyed steady appreciation since 2012, which made it fairly easy for home owners and investors to buy and sell properties for a profit in a short period of time. While price appreciation is expected to slow for the remained of year nationwide, Austin’s market should still see steady price growth. However, your best bet for financing success is buying a home you can envision owning for several years. With today’s low interest rates the monthly payments have never been more affordable to help you start to build equity right away.
Can you meet today’s higher standards for securing a mortgage?
Lenders are tightening their mortgage standards in response to the economic activity and the growing number of forbearance requests on current mortgages. Even if you’ve been approved in the past the higher minimum credit scores and large down payments requirements for applicants will make securing a mortgage more challenging. Contacting your lending or real estate professional to find out if you meet the more stringent standards is a must.
Is your income stable?
Do you think there is a good chance you could lose your job? If you answered yes you are better off waiting to buy a home. The one exception would be if you’re planning to downsize. Moving to a less expensive home would allow you to decrease your monthly payment and tap into any home equity. This can be used for a number of options to bring you financial security.
WHEN YOU’RE READY TO MOVE
Uncertain market conditions may give you pause but they can also present opportunities. The average spring season would have been flooded with real estate activity, but right now only motivated buyers and sellers are in the market.
Looking to buy? Today’s record low mortgage rates give you a boost to your purchase power and with fewer buyers looking you might be able to snag the home of your dreams.
If you’re considering selling this year you’ll have fewer listing to compete against in your neighborhood but you’ll want to act quickly. Economist expect a surge of buyers who had been waiting on the sidelines to enter the market in July. Prepping your home now is important. Also keep in mind if a second wave a coronavirus cases hits this winter buyers could return to the sidelines.
Feeling comfortable and confident during this unprecedented times can be challenging. Consulting a trusted real estate advisor who knows the market and can discuss your specific needs and circumstances is important to help you make the best decision.
- Forbes – https://www.forbes.com/sites/ellenparis/2020/05/08/latest-housing-market-update-from-realtorcom/#20bf7829113e
- HousingWire – https://www.housingwire.com/articles/realtor-com-housing-market-will-bounce-back-this-year-but-the-rebound-will-be-short-lived/
- Curbed – https://www.curbed.com/2019/1/10/18139601/recession-impact-housing-market-interest-rates
- Realtor.com – https://www.realtor.com/research/weekly-housing-trends-view-data-week-may-9-2020/
- Money.com – https://money.com/coronavirus-real-estate-home-prices/
- Fannie Mae –https://www.fanniemae.com/resources/file/research/emma/pdf/Housing_Forecast_051320.pdf
- HousingWire – https://www.housingwire.com/articles/pending-home-sales-tumble-on-covid-19-shock/
- HousingWire – https://www.housingwire.com/articles/zillow-predicts-small-home-price-drop-through-rest-of-2020/
- Federal Reserve Bank of St. Louis –https://fred.stlouisfed.org/series/CSUSHPINSA
- Consumer Financial Protection Bureau –https://www.consumerfinance.gov/coronavirus/cares-act-mortgage-forbearance-what-you-need-know/
- Bankrate – https://www.bankrate.com/mortgages/federal-reserve-and-mortgage-rates
- National Association of Realtors –https://www.nar.realtor/sites/default/files/documents/2020-05-11-nar-flash-survey-economic-pulse-05-14-2020.pdf
- Forbes – https://www.forbes.com/sites/alyyale/2020/04/17/buying-a-home-during-the-pandemic-dont-expect-your-everyday-home-purchase/#fadad3d33b0c
- Washington Post – https://www.washingtonpost.com/health/2020/04/21/coronavirus-secondwave-cdcdirector/