We get it. Being stuck in an apartment that doubles as an office or sharing a cramped condo with roommates during a global pandemic is enough to make even the most die-hard city-dwellers long for life with a little more elbow room. (And possibly a mud room.)
With mortgage rates at near-record lows for the foreseeable future, the need to breathe in the fresh air of your very own backyard might be more tempting than ever. Before you hire movers, though, there are some important things to know about the state of homebuying right now.
First, and this is a big one, there are fewer homes for sale in most U.S. markets. And while the historic lack of inventory is great for those trying to sell a house, it’s obviously not as good for someone looking to buy.
“If you go shopping for a home right now you’ll see 30 percent fewer houses, a staggering drop nationwide,” says Jeff Tucker, an economist with Zillow. There are only a few exceptions. In very expensive urban markets, such as Manhattan and San Francisco, housing inventory is at more normal levels than most other regions of the U.S.
Fewer homes on the market mean fewer options for potential homebuyers. In this seller’s market, it can also mean very little wiggle room when it comes to negotiating the price of a home or condo. Seller’s can afford to hold out for full asking price when multiple offers roll in.
A recent analysis from Redfin shows that nearly half of all homes that went under contract from mid-August to mid-September 2020 had an accepted offer within the first two weeks on the market. That’s the highest level since at least 2012.
Still, with home values rising for eight years straight, could a correction be around the corner?
Despite rising home values, the experts we talked to aren’t looking for a market correction, also known as a drop in prices, in the next few months. Because of the limited housing inventory, home prices are expected to continue climbing as they have increased more than 100 months on a year-over-year basis, says Jessica Lautz, National Association of Realtors vice president of Demographics and Behavioral Insights.
“There has been pent-up demand due to COVID-19,” Lautz says. “Buyers have re-entered the market after pausing their transactions in the spring. Additional buyers are entering seeking new living situations as homes are more than places to sleep. They are now home offices, schools, restaurants, and movie theaters.”
In fact, home sales rose in August 2020 to a high not experienced since the 2006 housing boom, in spite of — or perhaps because of — the COVID-19 pandemic. Existing-home sales in each of the four major regions of the U.S. saw month-over-month and annual growth, according to a late September report from the National Association of Realtors. The Northeast saw the largest monthly improvement in home sales.
Still, those working from home for more than six months straight and thinking of leaving a big city (or a small space) to buy a house with more square footage in the suburbs should consider what might happen in the next few months – including a return to the office and a potential daily commute – and proceed with caution.
For most people, a home is the largest purchase they will ever make, paid for over many years. Lautz says home buyers must evaluate what is right for their specific situation: “Purchasing a home must be considered a long-term decision where all factors must be weighed, such as monthly mortgage costs, the desire for homeownership, and family considerations.”
Something else to think about: Traffic is not yet back to normal in many metropolitan areas, because of so many people still working from home. So, it may be hard to determine what a daily work commute might really look like until the pandemic is behind us.
It’s also important to note that economists say it will likely take years for the U.S. to recover from the economic downturn caused by the COVID-19 pandemic that has seen millions lose their jobs and record unemployment.
In recent months, Tucker notes, more than three million Americans who qualified have taken advantage of mortgage forbearance to pause or lower their mortgage payments because of unemployment or other financial difficulties related to the COVID-19 pandemic. Many of those in forbearance can extend the program for up to 12 months through the CARES Act.
So it’s possible a lot more homes could be up for sale next spring or summer because those negatively impacted by the pandemic can no longer afford their mortgages and will be forced to sell or have lenders foreclose when individual forbearance programs ends.
“There’s no historical precedent,” says Tucker. “This has never happened before. We just don’t know how many people are going to be able to pay their mortgages.” He’s hopeful many more Americans will return to work in coming months and be able to resume paying for their homes.
More on HerMoney:
- Your Many Credit Scores and What They Mean to You
- 4 Easy Hacks to Increase Your Credit Score
- HerMoney Podcast: Home Buying & Real Estate Questions
- Buying Your First Home? How To Get A Mortgage
SUBSCRIBE: Own your money, own your life. Subscribe to the free weekly HerMoney newsletter for help staying on top of your finances!