Though mortgage rates are surprisingly low, home buyers are facing a challenging real estate market this spring. The demand for new homes increased during COVID-19 lockdowns and there has been a lack of homes available for sale. These things are the main reasons behind bidding wars and high prices in some areas as states keep on reopening for businesses. It has been harder for some buyers to qualify for mortgages as lenders need bigger down payments and higher credit scores due to the economic downturn and higher unemployment rate in the pandemic.
As compared to global recession in 2008 (when prices of homes fell steeply), the situation is completely different. In April, the average housing price (without new construction) was around $287,000), i.e. up to 7% from a year ago, as reported by the National Association of Realtors.
Over the years, supply of housing properties was very tight already, especially for those buying homes for the first time, due to reduced speed of new construction. Then the pandemic brought uncertainty which gave cold feet to the buyers and sellers started pulling their homes off the market.
In April, housing sales were down around 18% as compared to a year ago. There were steep declines in the West. There were signs of improvement a month later when the stage was being set up for constant recovery in summer. Since a lot of states have been easing lockdowns and lifting restrictions on home visits, the real estate market is being improved again. Shoppers are gaining confidence again by visiting homes. Around 2/3rds of people are confident to revisit an open house, who has visited the same house last year, according to a separate survey by the Realtors association.
But there are some sellers who are being skeptical. They prefer to show their homes only through appointment. They are checking out offers only from those who are serious about buying a home and pre-approved for financing. In short, they just don’t like to deal with casual shoppers.
Since the real estate market seems to be in favor of sellers, it is best for buyers to ignore minor repairs and some other issues that they may negotiate in a cold market. But this is not the right time.
What about mortgage rates?
One thing that is good for home buyers is that the rates of interest are all time low, due to which purchasing power has been somewhat improved. On average, the rate of interest was 3.18% for a fixed-rate mortgage for 30 years. Due to low rates, the number of applications has been increased. But banks have raised their requirements to qualify for home loans considering the economic downturn due to pandemic. Generally, banks are expected to require larger down payments and minimum credit scores.
For the first time home buyers, the situation is not that easy, who might be looking for Federal Housing Administration home loans with lower credit scores and down payments.