Buying a Home During Coronavirus Will Be Different. Very Different. Here’s What to Know
The process of buying a house is not what it used to be
By nature, people like predictability—especially when it comes to matters of greater importance. But with the arrival of the coronavirus this spring, our lives are now punctuated by a series of question markets. For those who are making one of the biggest decisions of their lives — buying a home — that instability can be especially disconcerting. Markets always have their ups and downs, but rarely has it been this hard to tell which direction the housing market will head. If you’re looking for a new home, here’s what experts are saying you need to know about the housing market and buying a home during and after the coronavirus-19 pandemic.
1. Don’t Expect to Get a Steal.
With nearly 40 million Americans filing for unemployment in just that past two weeks, you might think this is the perfect time to be buying a home at fire-sale prices. But that’s not happening, according to Jeff Tucker, an economist with the popular listing site Zillow.
For May, Tucker says median list prices nationwide are actually up 1.6 percent over the same period last year. The big reason: there simply aren’t that many homes to choose from right now. As of May 10, Zillow data shows that inventory levels were down nearly 20 percent on a year-over-year basis, giving buyers little leverage to haggle for a better deal.
The recently enacted CARES Act, per Tucker, is also solidifying prices. The legislation gave unprecedented protections to homeowners, who can more easily go into forbearance if their income has been impacted by the health crisis. “I think that policy is providing a lot of insulation to the housing market from what would otherwise be major downward pressure on prices,” he says.
For those looking for a bargain, patience may be the key. Zillow economists are predicting a 2.7 percent decline in median home values from February to October, as the economic morass drags on and more would-be sellers decide to hang “For Sale” signs. Then again, there’s no telling whether interest rates will still be as ridiculously low as the one’s lenders are offering today.
2. Different Cities Are Seeing Different Trends.
There’s a tendency for local conditions to override national real estate trends, and, in that sense, the coronavirus housing market is no exception. Cities like Phoenix (+8.9 percent), Seattle (+7 percent) and Charlotte (+6.2 percent) have experienced robust price increases, even in the midst of economic chaos, according to the U.S. Zillow Home Value Index.
In other cities, however, it may be a little easier to find a bargain while buying a home, relatively speaking. Big metros like Chicago (+1 percent) and New York (+1.2 percent) have seen prices edge up over last year, but barely.
Even different ends of the pricing spectrum are reacting differently, says Tucker. While inventories are low across the board, new listings have been particularly sluggish this year for higher-end homes, where owners tend to have a bigger financial cushion to lean on.
“They’re more able to strategically hold off on selling,” Tucker says of wealthier homeowners. Sad as it may be, it’s easier to find a deal where people are feeling the most financial pain.
3. Be Prepared for Tighter Lending Requirements.
While crazy low interest rates have been one of the few financial bright spots of late, actually qualifying for a mortgage has only gotten tougher. Anyone thinking of buying a home right now should be ready for a stringent underwriting process.
“Lenders are looking to protect both themselves and consumers,” says Jared Maxwell of Embrace Home Loans, a Rhode Island-based company with offices along the East Coast.
Some lenders, like JPMorgan Chase, are raising the bar when it comes to credit score requirements. The bank recently announced it would require a 700 or higher score for new mortgages and a minimum 20-percent down payment, kicking all but the most well-qualified buyers to the curb.
For most buyers, the more likely scenario is that lenders will take extra steps to make sure your income hasn’t taken a sudden hit. Maxwell says Embrace and a number of other lenders are now requiring applicants to provide a copy of their most recent pay stub, right up until the closing. And in some cases, lenders will insist that you complete a form verifying that you’re not in forbearance on your current home and haven’t taken a recent cut in pay.
Self-employed individuals, Maxwell adds, often face an even higher hurdle. Some lenders have increased the amount of reserve assets such individuals must have in order to take out a new loan.
4. Expect the Home Buying Process to Look a Lot Different.
For an industry built on face-to-face interactions, social-distancing has forced real estate brokers and mortgage lenders to find creative work-arounds.
In the midst of a lockdown, even showing a home in person can become an obstacle. One solution: 360-degree virtual tours that offer the next-best thing to an actual walk-through. Tucker says Zillow’s “3D Home” offering has seen a seven-fold increase in users since February. “It went from a niche feature to almost being required to have a competitive listing,” he says.
Despite employees working from home, Maxwell says lenders are trying to ensure homeowners aren’t dragged along by a slow approval process. He notes that mortgage companies like Embrace have tried to reduce paperwork as much as possible, in many cases forgoing an in-person home appraisal altogether. And instead of meeting in an office to do the closing, he says the parties are often signing necessary documents from home, with attorneys just outside their door.
Regardless of the make-shift nature of it all, Maxwell insists his company hasn’t seen its turnaround time increase as a result. “We’ve retreated in our ability to serve customers because we’re working remotely,” he says.