A few days ago you were meeting with your real estate agent talking about your house hunt and now you might be wondering what to do in the wake of the spread of coronavirus. Now that coronavirus has changed the world and our economy (seemingly overnight), the biggest question for homebuyers and would-be homebuyers is “Should I still buy a house right now?”
It’s a new reality for many of us. We’ve put together this guide to help answer some of the questions you may have as a homebuyer (or potential homebuyer) and hopefully assuage some of your fears.
The 7 Questions Buyers are Asking About Real Estate and Coronavirus
It’s understandable that buyers have a lot of questions about the way the home buying process might work in the midst of coronavirus. Let’s address them.
1. Will Coronavirus affect the housing market in my area?
You’ve probably heard the word ‘fluid’ a lot lately as everyone- people and companies alike- describes the current state of affairs as a “fluid situation.” Well, it’s true. It most likely will affect the housing market somewhat in your area. But with updates and developments every day, it’s too soon to predict exactly how the real estate market will be affected and for how long.
Here’s what the experts do know: The way real estate works will flex to fit buyers’ and sellers’ new needs and safety precautions. People are still buying and selling homes. At the very least, some people may put their home buying or selling on hold while they navigate new developments and updates.
The housing markets in the greater Des Moines area and Iowa remain unchanged right now. Agents are just as busy as ever helping buyers find homes in a competitive market and sellers are still benefiting from the increased equity in their homes and an influx of buyers eager to find their dream homes. While the number of in-person showings and open houses may drop, that doesn’t mean buyers and sellers aren’t active. The way real estate works (in-person meetings, walking through homes, even handshakes!) may change, but the market is still active and, for now, it’s still a good time to buy or sell a house.
2. What is happening to interest rates?
You probably heard about the Federal Reserve’s historic move to cut interest rates to zero. But does that mean you’ll see no interest charge on your mortgage statement?
“Probably never,” said Brian Swanson, branch manager at Inlanta Mortgage. “That’s because the Fed Funds rate has pretty much nothing to do with mortgage rates. But there is something else in the Fed announcement that can have an impact on mortgage rates…the Fed said it will start buying mortgage-backed bonds (MBS), a move that will likely…lower rates for borrowers.”
Lower rates could ease the fears of buyers who may be facing temporary unemployment due to company shutdowns during the pandemic.
According to Freddie Mac, although interest rates have risen slightly after the Fed cut interest rates and started purchasing MBS, now may still be the best time to lock in a low interest rate on your 30-year fixed-rate mortgage.
“The Fed purchasing MBS should help cushion some of the blow to Americans by potentially lowering their mortgage payment or giving them an incentive to buy a home,” Dave Stevens told CNBC. Stevens is the former CEO of the Mortgage Bankers Association and former commissioner of the FHA.
The best advice right now from experts about interest rates? “Take advantage of it,” said Swanson. “Be in touch with your mortgage advisor and be fully prepared to take advantage of it. These are volatile times so if you can get something better, take it.”
3. Can I still get a home inspection, appraisal or close on a house?
If you’re further along in the home buying process you may be wondering if you can still have a home inspection, if your lender will still conduct an appraisal or if you can even close on your home. The answer right now is yes!
Your closing or inspections most likely won’t be canceled. Everyone you work with is implementing new standards of operation to make sure your home can still be purchased while still protecting the safety of everyone involved.
Even home inspections, which take place with the buyer, buyer’s agent and inspector inside the home, can still be completed. Kate and Andrew Bode are the husband and wife team behind Bode Home Inspections. “We will still be providing our service to those who need a home inspection,” they stated. “Inspectors are washing hands often, practicing social distancing and standing at least 6 feet away from clients at inspection and offering to follow-up on the inspection report with a phone call. Clients will still receive detailed reports with photos.”
Your lender will still process your home loan application and conduct an appraisal for you. “We are currently still pushing closings in a timely 30-day manner,” said Swanson. “In the future, closing time may get longer if there is a delay in all the moving parts: title reports, abstracting, inspections, etc.” But right now, lenders are still moving along at the normal pace.
Lenders and closing agents will adopt new sanitation practices and may limit the number of people allowed to attend in-person meetings. Some law firms are asking clients to call before they come in so they can assign you to a conference room that has been sanitized. They will also ask you to wash your hands before entering the room or using the elevators. Many are also encouraging buyers to limit the number of people they bring to just the people who need to sign documents- however, they will allow your real estate agent or lender on a case-by-case basis. Some law offices are also asking to stay in their car outside the office and sign papers there.
The services you need from home inspectors, lenders and closers are still available and still happening.
4. How do I work with my real estate agent?
A big question from buyers and real estate agents alike is “How do we house hunt now?” The way things work in real estate may change this year but the goal is the same: to find your dream home.
A lot more real estate agents will work virtually going forward. That means everything from house hunting to showings to meetings will be done via phone, Zoom, FaceTime, Hangouts and any other form of video or Internet-based chat you prefer.
Agents will get creative in the way they reach you. You may find yourself “walking” through a new house via FaceTime as your agent explores showings for you. This doesn’t change your agent’s knowledge or experience- you should still get the same insight and advice that you would if you were standing right next to them.
You may also find your agent will have you electronically sign a lot more of your official documents, from agency agreements to purchase agreements to inspection reports. You can still obtain physical copies of these reports for your own files but electronically signing them enforces CDC-recommended social distancing.
Your agents will be just as accessible and just as ready to help you and answer questions. You may just have to limit yourself to phone calls and elbow bumps for the time being.
5. Are we headed for a recession?
It’s hard not to read anything about real estate right now that doesn’t mention the probability of an impending recession. It’s easy to feel anxiety when you hear about a volatile stock market and consumer anxiety. The word ‘recession’ all too often gives everyone a flashback to the housing crisis of 2008 and makes you ask “If we’re headed for a recession, should I even buy a house?”
The team at Johns Burns Consulting has studied past pandemics in order to make predictions about the current one. “Historical analysis showed us that pandemics are usually V-shaped and include sharp recessions that recover quickly enough to provide little damage to home prices. Our cutting-edge search engine analysis by our Information Management team showed the current slowdown is playing out similarly thus far.”
Major financial institutions, such as Goldman Sachs, JP Morgan and Morgan Stanley, agree and are also predicting the economy will follow a V-shaped pattern of progress. We’re currently headed for a drop in economic activity in the second quarter- some of which we’re already seeing due to rising unemployment and the shutdown of nonessential businesses. This is to be expected and it helps to be prepared for it.
6. Will it be like the 2008 Great Recession?
The answer is we are not headed for a recession like the one we experienced in 2008. Experts agree the current state of the economy is nothing like the crash we experienced before for a number of reasons:
- Lenders are more careful about the home loans they issue. The Mortgage Bankers Association released a report showing the availability of mortgage credit over the last 16 years. We are nowhere near the housing bubble of 2008 because mortgages are not as easy to obtain now, making them more secure.
- Home prices are appreciating but not at the abnormally inflated rate they were before. The normal rate of home appreciation is about 3.6%, which we are currently near with an appreciation rate of around 4.7% in 2019 compared to 11.4% in 2005.
- There is currently a shortage of homes available for sale right now rather than an excess. An excess of homes for sale causes home prices to depreciate, which is what happened in 2007. Right now the market is experiencing a shortage in houses available for sale which is causing home values to rise.
- Interest rates are low and overall wages have increased since 2006 so most buyers today spend a smaller percentage of their income on a home than buyers did in 2006. The average family is holding on to more of their income now rather than putting it toward the monthly mortgage payment.
- Equity has increased in the last three years and most homeowners are holding onto it. Before the housing bubble burst in 2008, homeowners were withdrawing the equity in their homes as soon as it was built up which led to foreclosures and short sales. Now most owners have not cashed out on the equity that has been building in their homes which puts them at an advantage when they’re ready to sell.
According to CoreLogic, a recession does not mean the housing market will crash. Home prices actually appreciated during three of the last five recessions. Housing is not the trigger that will cause a recession in 2020.
7. What if I become unemployed due to coronavirus?
The anxiety among consumers right now isn’t unfounded. Many people in industries such as event planning, service, entertainment and retail are facing uncertainty with business closures and suspended operations. So what happens if you suddenly lose your job or it’s put on hold while your employer navigates the current environment?
“If you’re taking unemployment while you’re off work or while your company is temporarily shut down, make sure you reach out to your lender,” said Jes Kettleson, the Director of Closing at RealClear Settlement. “When you go back to work, you will have to be back long enough to either receive verification of employment stating you are working or a paycheck [as proof].”
If you are purchasing a home with your partner or spouse, it’s possible you may still be able to obtain financing with their income. But a change in your downpayment or credit would affect the parameters of your loan or the loan type. If you anticipate unemployment or a reduction in your income due to shutdowns, make sure you contact your lender immediately. They will be able to answer all of your questions and help you figure out the best way forward in your home buying process.
Updates on the coronavirus and its effects on the economy are coming in every day. We are closely following market experts and thought leaders so we can answer any and all questions our clients may have about real estate and their homes. Stay tuned for more resources so you and your agent can navigate the new real estate market successfully.