If there’s been one certainty over the past three months, it’s been uncertainty. No one can say for sure what the future holds regarding public health and how it will affect our national economy and personal financial circumstances. However, when it comes to the homebuying market, we can look at where we were before the pandemic as well as current indicators to get a sense of where we might be going.
Welcome to the start of the spring summer market
In December 2019, Realtor.com projected a slight decline in home sales of 1.8 percent for 2020. However, with the health crisis coinciding with the start of spring housing market (the traditional start of the homebuying season), the selling season never really got started. Home sales declined in March and April in every major region due to the pandemic, with pending home sales slumping 21.8% in April as many sellers took a wait-and-see approach.
As the country begins to reopen, summer will replace spring as the true ‘start’ to the housing market, so don’t worry if your plans to buy this spring got delayed by the pandemic–you’re not alone. Along with buyers who got delayed by the pandemic, there is also expected to be an additional crop of new buyers who, after three months in quarantine, are understanding the limitations of their current homes and hungering for some more space. According to Robert Reffkin, CEO of real estate brokerage Compass, buyers who have been trapped in their homes for three months are asking “’Do they have enough space inside, outside? Do they have enough light? Do they have the right home office?’ If the answers to those questions are no, they call their agent.”(1)
Low rates (great!) and low inventory (not so great…)
On the plus side, the rate environment going into the summer market couldn’t be better. As of June 11, 2020, the 30-year fixed-rate mortgage sat at an average of 3.21%,(2) which represents some of the lowest levels since Freddie Mac began tracking this data in 1971. (For context, a year ago, the 30-year fixed-rate mortgage averaged 3.99%.(3)) However with the good news comes the not-so-good news: Historically low housing inventory is still a major hurdle for buyers, with total inventory down 23% year-over-year as of May 30(4).
Sellers may also be reluctant to open their homes up to the sales process and could continue to take a wait-and-see approach to listing their home, which could continue to hamper inventory.
How buyers should prepare for a competitive market
Because of the low inventory and pent-up demand, there are already reports of bidding wars occurring in markets like Boston, San Francisco and Fort Worth, which can drive up costs for buyers who are committed to buying this year.(5) Since the ability to move quickly can be your greatest strength in a competitive market, one of the best things you can do is to get preapproved by a qualified lender to help signal to sellers than you mean business. And when it comes to speed, Guaranteed Rate’s safe, simple, and secure digital process allows buyers to complete much of the homebuying process digitally, which can help when you need to move fast.
Additionally, while rates are low, favorable mortgage rates are becoming less accessible to borrowers with damaged credit,(6) so you’ll want to do everything you can to keep your credit strong.
The known unknowns
The mortgage industry has already experienced an uptick in purchase applications, which signals summer home sales are starting to rev up.(7) We’re also seeing forecasts that a potential second wave of infections later this year and/or the lingering effects of high unemployment could drive down home sales in the fall.(8)
So in the absence of a crystal ball, the best we can do is be prepared. If you’re interested in buying this summer please give us a call!