Is it an Opportune Time to Buy a Home?

During these unexpected times, another surprise has been that there has been no shortage of interested homebuyers. Advertise a house anywhere under $400,000, and we have dozens of calls for showings. In light of the recent concerns over COVID-19 and the ongoing social unrest, you might be surprised that home demand is so high. 

Let’s look at some of the reasons driving the current market environment. 

HISTORICALLY LOW INTEREST RATES

Since the pandemic, mortgage rates have been held at an all-time low. For every 1% drop in interest rate, a buyer purchasing a home priced at $300,000 will save $200 per month. That certainly provides the buyer extra buying power. 

Historically Low Interest Rates

LOW RATES DON’T MEAN BARGAIN HOME PRICES

But, buyers should be aware that this is not the best time to find the lowest prices. Danielle Hale, chief economist at Realtor.com says that “You shouldn’t expect a low price and that you may not have a lot of options to choose from.”

Inventory of homes is certainly at one of its lowest in years. In light of COVID-19, many homeowners are choosing to stay “put.” In lieu of a move, they are opting to renovate their current home. Those that are selling have more buyers looking at their homes and, ultimately, multiple offers, which drive up prices. So, if you are looking for a home right now, it may not be the best time for a bargain.

NEW HOME SALES

Buyers, young and old, are drawn to the new allure of a new community, and new possibilities. CNBC reported that new homes in the U.S. spiked in April, too. They were up almost 1%. Currently, new homes make up almost 10% of the demand in the U.S. 

Locally, many builders are offering great incentives for buyers. These include decorating incentives, appliances, and paid closing costs when using their preferred lender. 

However, if you are thinking about new construction, be prepared to face many unexpected costs. These additional expenses include irrigation systems, backyard landscaping, patio covers, window treatments, lighting fixtures, garage racks, and so much more. Another thing to consider is that most of these extra costs are dollars you will not recover in resale.

Before purchasing, consider how long you plan on living in this house. Most homeowners will not see a profit until year five in any growing economy and even longer in a shrinking one.

SHORT SALES AND FORECLOSURES

Let’s return to those homebuyers looking for a great deal. If they can’t get one with a regular resale property, maybe they can find a bargain in a short sale or foreclosure.  

It’s true that everyone likes a bargain, but is a short sale or foreclosure really a good deal? During the last downturn, these properties were everywhere. You could identify them quickly by the overgrown yard and sad vacant look from the street. 

Over the last few years, investors have come in and purchased most of these properties, pouring money and time into “flipping” and selling them at top dollar. But, if you spend time in them like I do, then you will see that these “renovated” homes are not always a good buy, either.

Past homeowners failed to do regular maintenance on these homes. HVAC units, roofs, plumbing were ignored, often giving way to new problems. Investors will come in and cosmetically enhance the property but have “speed-to-market” in mind. That means you may uncover some large expenses you weren’t counting on just a few short months into homeownership. I highly recommend getting home inspections on every home, but these are especially important. And, if an investor has put the home on the market, then be prepared for them to be somewhat unwilling to make requested repairs or even lower the price.

For the same reason, first-time homebuyers will not want to purchase short sales or foreclosures. In these cases, the properties are sold as-is. Think of the movie the “Money Pit” where the homebuyers kept discovering more problems with the house. Although it was extreme in its portrayal of what could go wrong, the movie offered a good picture of what you could face with one of these unknown properties. 

HOME PURCHASE ASSISTANCE

If you need more guidance on buying a home in the current market, call Liz at 951-970-4771.