Mortgage rates may be appealingly low, but people shopping for a new home this spring face a challenging market.
Demand, which was pent up during coronavirus stay-at-home orders, and a dearth of homes for sale are keeping prices high and setting off bidding wars in some areas as states continue to reopen for business. Some buyers may also find it tougher to qualify for mortgages, as lenders require higher credit scores and bigger down payments in response to higher unemployment and economic uncertainty in the pandemic.
The situation is different from the economic downturn in 2008, when home prices fell sharply as a housing bubble popped.
“We’re still seeing a huge seller’s market,” said Colsie Searcy, an agent in Colorado Springs, Colorado.
Nationally, the median price for a home, excluding new construction, was about $287,000 in April, up more than 7% from a year earlier, the National Association of Realtors reported.
Housing supply was already tight in recent years, especially for first-time buyers, because of the sluggish pace of new construction, said Danielle Hale, chief economist for listing site Realtor.com. Then uncertainty because of the pandemic gave buyers cold feet, leading some sellers to pull their homes from the market.
Home sales in April were down about 18% from a year earlier. Declines were particularly steep in the West. But Realtor.com reported this week that there were signs of improvement in May, “setting the stage” for continued recovery over the summer.
Now, with many states lifting restrictions on home tours, the housing market is reawakening. Shoppers are feeling more comfortable visiting properties: About two-thirds of people who attended an open house within the past year said they would attend an open house now “without hesitation,” a separate survey from the Realtors association found.
But some sellers remain cautious. They want to show homes by appointment only, and they want offers from serious buyers who have been preapproved for financing, said Lawrence Yun, chief economist with the association.
“They don’t want casual shoppers,” he said.
Jay Rinehart Jr., a broker in Rock Hill, South Carolina, said he did a lot of “coaching” to prepare buyers for the market. (He sells homes in South Carolina as well as in North Carolina, near Charlotte.) He recalled that early last week, seven homes were available in a client’s price range. By the end of the week, there were just three.
Because the market tilts in favor of sellers, Rinehart advises buyers to ignore certain issues, like minor repairs, that they may have negotiated over in a less heated market.
“This is an unusual time,” he said.
While most shoppers balk at buying properties without visiting them first, that has sometimes been necessary during the pandemic, said Donna Deaton, a relocation specialist in the Cincinnati and Dayton, Ohio, areas. While traditional open houses are returning in some markets, she said, some property owners still prefer that shoppers make appointments. Buyers who sign up for the first available slots get to make the first offers, leaving those with later appointments out of luck.
“We are scrambling to find homes for buyers,” Deaton said.
One problem, she said, is that some sellers are reluctant to put their homes on the market because they worry they won’t be able to find a new property for themselves and will have to rent while they shop.
In some cases, homeowners who were planning to sell have decided to remain where they are and renovate instead, adding home offices because they expect to commute less, said David Legaz, a broker with Keller Williams in Flushing, New York, and the president-elect of the New York State Association of Realtors.
Here are some questions and answers about the spring homebuying market:
Q: What’s happening with mortgage rates?
A: One bright spot for shoppers is that mortgage interest rates are near historic lows, which is helping buyers afford those pricier homes. The average rate on a 30-year, fixed-rate mortgage was 3.18% for the week that ended Thursday, up from 3.15% the previous week, according to Freddie Mac, the mortgage finance giant. A year ago, the average was 3.82%.
The low rates have increased the number of mortgage applications, but some borrowers may find it difficult to qualify for a home loan as banks raise their standards amid the economic turmoil of the pandemic. Borrowers can generally expect banks to require higher minimum credit scores and larger down payments, said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication.
The situation is particularly challenging for first-time homebuyers, who are more likely to use Federal Housing Administration loans that allow lower down payments and credit scores. The FHA insures loans for borrowers who put down as little as 3.5% if they have credit scores of at least 580. But lenders may set stricter standards, and some are requiring higher minimum scores and 10% or 20% down, Cecala said.
Terms may also be tougher for borrowers at the other end of the spectrum — those seeking “jumbo” loans. While banks sell most mortgages to investors, jumbo loans are typically held by the original lender. With many demands being made on their funds in an uncertain economic environment, banks are being cautious.
“Banks are stretched,” said Mike Fratantoni, chief economist with the Mortgage Bankers Association.
Because many people have lost jobs or been furloughed, lenders are now typically doing a second employment verification just before the closing to be sure the buyer can afford to repay the loan.
“It’s hard to get a handle on someone’s job situation,” Cecala said.
He advises borrowers to shop around by checking loan terms at traditional banks, finance companies like Quicken Loans and credit unions.
Q: How is being preapproved for a mortgage different from being prequalified?
A: It’s more important than ever to be preapproved for a home loan — not just prequalified — when shopping in many markets, agents say. Preapproved means you have submitted income information and undergone a credit check, and have been given the green light to borrow a specific amount of money. Being prequalified is more of an estimate.
This article was written by Ann Carrns for The New York Times.