Consider these five tips when buying real estate during COVID-19.
Purchasing Real Estate During COVID-19?
Here Are 5 Things You Should Consider According to Lindsay Guion
Job Security
In June, USA Today reported an unemployment rate of 11.1%, compared to 14.7% in April. While it’s a noticeable difference, the jobless rate is still higher than any period in the last 70 years. “It’s risky to buy a home when you can’t guarantee you’ll receive your next paycheque,” says Guion. Traditionally, when applying for a mortgage, aspiring homeowners must turn over their pay stubs, relevant employment info, and sometimes, a letter from management validating that the material provided is accurate. If you meet the creditor's stringent requirements and close on your mortgage, you will assume monthly payments to settle your loan. “Should you lose your jobs as a result of the pandemic, you risk falling behind on mortgage payments and tarnishing your credit score,” explains Guion. In extreme cases, the house goes into foreclosure, and the lender takes possession of the property. “You have a lot to lose, so make sure you’re ready to be a homeowner,” he exclaims. Before you begin house hunting, Guion urges you to reflect on your industry and whether you believe your job may be in jeopardy due to COVID-19.
Interest rates
In July, Freddie Mac reported that the average rate for a 30-year fixed mortgage had dropped to 2.98%, the lowest rate since they began tracking averages 50 years ago. With the Coronavirus pandemic pushing interest rates to record lows, more people are considering homeownership. However, according to economists, there is one obvious issue: to benefit from low mortgage rates, there must be homes for sale. “Supply is low, but demand for real estate is high,” states Guion. One reason being, before the recession, investors would purchase investment homes with the goal of transforming them into rental properties. Second, COVID-19 restrictions combined with a weak economy have intensified the situation, causing construction projects across the country to experience delays or cancellations.
Finally, some owners may be hard-pressed to sell their abode, given that low-interest rates provide a great opportunity to refinance. According to Investopedia, refinancing is a smart idea if you can reduce your interest by at least 2%, although, some lenders say as little as 1% savings is also sufficient. Alternatively, owners may be inclined to pursue a cash-out refinance, giving them access to funds at a lower rate, in order to remodel, purchase another property, or consolidate debt. “At the end of the day, buyers need to consider the loan rate as well as what homes are on the market,” Guion says.
Bidding wars
Property values usually fall during a recession, allowing homeowners to purchase real estate below the seller’s asking price. While this is beneficial for buyers, it’s not so great for sellers looking to turn a profit. However, the opposite seems to be holding true given our current pandemic situation. “Home prices are steady, and demand is at an all-time high, to the point where buyers are facing bidding wars,” says Guion. During a bidding war, potential buyers drive the price of a home upwards through a series of increasing price bids as they compete for ownership. In June, Redfin reported a significant 53.7% of properties were the subject of bidding wars. Ultimately, a lack of supply could be the reason why some houses are selling for more than their current market value. “Bidding occurs at a fast pace,” says Guion, “it’s easy to make an impulsive or emotional decision that you later regret.”
Speaking of regret, LendEDU surveyed 1000 mortgage holders in August who purchased their homes in the wake of COVID-19 and discovered that most people experienced buyer’s remorse. In particular, individuals that purchased homes in the city due to low-interest rates found that COVID-19 was driving more people to the suburbs, where there are fewer cases, thereby reducing the value of their new property. To illustrate, Manhattan experienced a 56% decline in property sales in July, while the region’s neighbouring suburbs had a 44% increase.
Virtual open houses
How we view homes in 2020 is markedly different compared to previous years. With buyers and sellers nervous about coming into contact with one another, virtual tours are taking precedence. “Open houses are an important part of the home buying process,” says Guion, “they help people visualize what it would be like to live there.” One Canadian firm, the O’Brien Group, tells CTV News how they’ve updated their home tour service by streaming them live on Facebook. The two founding partners work together; as one does a walkthrough of the property, the other is available to answer questions online in real-time. Afterwards, the live-streamed tours are posted online so that interested buyers can go back and re-watch them and consult with friends and family. Virtual viewings can be advantageous for a variety of reasons. For instance, they are more convenient, they save time commuting, you can view more houses in one day than you could in person, and you don’t have to be accompanied by your real estate agent. “While virtual tours can help you decide if you’re keen on a property, I recommend requesting a safe and private viewing before submitting an offer,” Guion advises.
Home inspections
The changing nature of home inspections should also be taken into account when buying a home. Before the outbreak, clients were encouraged to participate in inspections. “Prospective buyers usually feel good about attending so they can ask questions and point out their concerns,” says Guion. However, for safety concerns, it makes sense that inspectors work alone to avoid violating social-distancing guidelines issued by the government. Furthermore, sellers have less to worry about with fewer hands touching railings, light switches, and other objects inside the home. Instead, buyers can receive their inspection results over the phone. “Using COVID-19 as an excuse to forgo a home inspection is a huge gamble,” says Guion. Inspections can reveal unforeseen problems that may deter you from purchasing or can help you negotiate a better price.
