Wondering how the housing market is being affected by COVID-19? Are you thinking of selling but you’re wondering if it’s the right time to list? Have you considered getting into the investment property game but you’re not sure where to start? On May 12th, our CEO, Helen Ngo, co-hosted a fireside chat with real estate agent, Becky Nguyen of Red & Company, to answer these questions and more. Below is a recap of their main discussion points.
SKIP TO SECTION:
3. PURCHASING PROCESS
4. MARKET OUTLOOK
5. BOTTOM LINE
Is now a good time to list your home?
If you are in a financial position to do so, now may be a good time to list your home for the following reasons:
There is a shortage of supply – there are 25% less homes on the market compared to this time last year; thus, you may be able to list your home at a higher rate than you would if there was a larger supply from which buyers can choose.
If you have a “hard-to-sell” home such as one that needs a lot of updating, buyers may be more willing to compromise because of the shortage of supply.
As lock-down restrictions have been eased over the past 2 weeks, buyer demand has increased significantly so you may be able to sell your home more easily.
Does it look bad if your house stays on the market for too long?
Under normal circumstances, houses that stay on the market a long time may get a bad reputation as undesirable among potential buyers. Given the current circumstances, a delayed home sale may partially be attributable to limited home showings. Fewer showings can result in less sales.
However, the location and price point are two of the most important aspects of selling a home and that has not changed. These factors can significantly influence how long a house stays on the market.
If your house has been on the market for a while, you have the option of putting the listing on hold and trying again as circumstances improve. Putting a listing on hold does not affect the days the home has been on the market.
Moreover, “a long time” is relative. Some sellers deem having their homes on the market over 45 days as a long time, whereas for others, that is very short term. In the Atlanta market, most homes go into pending around 42 days on average.
Are there safety measures in place for house showings during COVID-19?
Many real estate agents have found ways to continue doing real estate business safely by putting protocols in place. For real estate agency, Red & Co., that includes:
Wearing masks and gloves at every showing
Supplying potential buyers with shoe covers and gloves
Asking sellers to leave windows and doors inside the home open to improve indoor air circulation and prevent touching of doorknobs
Screening buyers by having a virtual open house first to limit in-person showings to serious buyers only
Scheduling more time between home visits to prevent crowds of potential buyers
Each seller has his/her own idea of comfort in terms of safety measures that should be addressed with his/her real estate agent prior to allowing buyers into the home.
Is now a good time to purchase a home?
As with selling a home, you should only consider buying a home if you are in a financial position to do so such as reviewing how purchasing a new home will affect your other financial goals and personal household cash flow long-term and short-term. If buying a home requires you to deplete your emergency savings and/or withdrawing from your retirement accounts, you may want to review with your financial planner and realtor the price range you can afford or whether you should wait to purchase a home later when your financial nest egg is more established.
If you are in a healthy financial position, here are some advantages to purchasing now during COVID-19:
Low interest rate environment. Even a 1% lower interest rate can significantly decrease monthly payments and interest over the life of the loan.
The average interest rate on a 30-year fixed-rate mortgage is at a record low of 3.4% currently. Though this is the average, the actual interest rate you receive depends on your credit history, financial standing, and income.
Since many are hesitant to purchase right now due to their employment outlook or fear of going outside their homes, ready buyers have less competition in an otherwise typical competitive buyers’ market.
There is still a lot of confidence in the housing market. The number of homes under contract is only 9% down compared to this time last year.
How do I know if I am ready to buy a home now?
It is advised that you consult with your financial planner or advisor to determine your readiness to become a homeowner. For now, you can start thinking about the following questions:
How confident are you about your employment situation? Is your income secure for the foreseeable future or is there a possibility that you may get laid off or have a reduction in salary?
The home you purchase today may not be your forever home, but can you live with the decision for the next 5-7 years?
How much of a monthly payment can you afford and is that realistically enough to cover the principal, interest, property taxes, home insurance, HOA fees, maintenance, etc. each month?
While home shopping, are there any repairs to the home that may require you to tap into your funds in the next 1-2 years? For example, if you purchase a home, will it require you to replace the roof in the next 1-2 years or any other major home maintenance expense? This affects your cash flow and ability to rebuild your savings.
If my spouse is unemployed due to COVID-19, will it be more difficult to get approved for a mortgage?
You can still get approved for a mortgage if you qualify on one income, but this may be more challenging, or you may get approved for less. However, couples who try to qualify for a loan on a single income may free up the other spouse’s income for other financial needs and wants.
What are other considerations buyers need to keep in mind while shopping for a home?
Home ownership is typically the largest asset on an individual’s or couples’ net worth. In other words, it is a large component of their wealth, especially for younger individuals.
Though home buying can be a key component to building your wealth, there is a right time and place for everything.
If you are ready to purchase, buy a home that makes personal and financial sense to you right now. If you have a dream home that is unaffordable now, consider buying a home that may allow you to build equity in the short-term quicker. Then, you can leverage that equity to later get into your dream home or even turn that property into an investment property. What are you willing to compromise today to be in your “dream home” in the future? What are your non-negotiables? Balance that with your overall needs and other life goals.
I have never hired a real estate agent. What are red flags I should look out for?
Buying a home should involve more than a real estate agent just showing a home and a client signing the contract. To act in the best interest of their clients, real estate agents should be asking targeted questions to help define precisely what the client needs, wants, and can realistically afford. This extends beyond home feature preferences and should involve coordinating with a client’s financial planner to understand their bigger financial picture, including their short- and long-term goals.
What should I look out for working with mortgage lenders?
Similar to working with a real estate agent, it is important to partner with a mortgage lender who does more than just run a quote without considering a client’s specific financial situation. Lenders should be willing to run different financial scenarios to determine how to balance a client’s available cash (i.e. how much to put towards down payment vs. keep in savings) and find the right plan based on a client’s financial situation. For example, it may not make sense for everyone to make a 20% down payment.
Also, coordinated conversations need to be had with your financial planner, mortgage lender, and realtor if possible so that everyone is on the same page in keeping the clients’ financial well-being in their best interest.
What is your interest rate outlook?
While we cannot predict when or in which direction interest rates will fluctuate, we do not anticipate a significant change from current rates until there is some normalcy that may come in the form of a vaccine within the next 1-2 years.
Do you predict there will be any future price declines or upticks in the housing market due to COVID-19?
The housing market appreciation may level off eventually during this time of uncertainty, but we do not anticipate a significant decline in home prices like we saw in 2008. The housing crash of 2008 was caused by fundamental systemic-financial issues causing an economic crisis, whereas our current economic situation is influenced by a health crisis.
It is anticipated that the economy will recover once there is a vaccine available (hopefully in the next 12-18 months, if not sooner). For this reason, it may not be wise to sit around in anticipation of a lower interest rate or price if you are ready to purchase.
Do you anticipate an increase in supply this summer?
Possibly. The spring market has been delayed, but we have seen an increase in the number of homes under contract as lockdown restrictions have been eased. There may be an increase this summer due to the current backlog, but it all depends on the course of the virus.
In this situation, understanding the micro market is more important than the macro market. In Atlanta, for example, there are different trends in different counties and parts of the city.
Depending on where you are located, review the micro-economic trends occurring in your area where you plan to buy or sell. The housing market in Buford, GA is very different than the housing market in Buckhead Atlanta for example; the demand and price points for selling is different.
Will the commercial market follow the same trend as the residential market?
Not necessarily. The commercial market may not recover as quickly as the residential market because many businesses have not been able to keep up with rent payments during this pandemic.
THE BOTTOM LINE:
Whether you are a buyer or seller, do not make a long-term decision based on short term circumstances. Do not pressure yourself into the market just because your neighbors’ house sold in 2 days or because interest rates are low.
There is a time and place for everything. Carefully consider your personal financial circumstances before buying or selling your home, weighing out all advantages, disadvantages, and risks – particularly during this time of heightened economic and political uncertainty due to COVID-19.