The COVID-19 pandemic has disrupted 2020 in a way that no one predicted. But how has the coronavirus impacted the real estate industry? What is it like trying to buy a home in the middle of a pandemic? And what special precautions should homebuyers take?
Buying a House During a Pandemic: More or Less Expensive?
Something as globally disruptive as a pandemic is bound to have effects on real estate values, housing availability, and mortgage interest rates. While specific circumstances will vary based on your situation and location, overall, can buyers expect to spend more or less if they’re purchasing a home right now?
It is currently a “seller’s market,” which means homes are selling very quickly and there are generally more buyers looking for homes than there are people selling them. The lack of competition for sellers means that they are more likely to get offers close to their asking price, and their house most likely won’t sit on the market for very long. However, for homebuyers, a “buyer’s market” is more preferable, where there are lots of houses for sale, which have sometimes been sitting on the market, giving the homebuyer a lot of options and room to negotiate.
Home values tend to go up in a seller’s market, which means that prices right now are more expensive than they have been earlier in the year. Prices did dip in August 2020, but are expected to rise again.
What’s the reason for this? Many people want to move out of the big cities, whether due to social distancing concerns or a desire to have a bigger yard and more room to roam. The amount of people leaving the cities for the suburbs or even rural areas means that values in those areas are going up, while on the other side, urban home values are decreasing. That means that if you are looking at purchasing a home in a city environment, you may be able to get a good deal.
Interest Rates – Rising or Falling?
Anybody who has ever looked at getting a mortgage knows that interest rates change daily – and sometimes several times per day.
Overall, however, interest rates have dropped to record-lows. In fact, Freddie Mac lists average monthly mortgage rates for every month since April of 1971, and they have never been this low! If you’re looking to buy a house, now is definitely a great time to get a low interest rate and potentially save thousands over the life of your loan. Record-low interest rates and a surge of mortgage applications are another reason why so many people are looking to buy right now.
The Homebuying Process – How Has it Changed?
So those looking to buy a house during the COVID-19 pandemic should be able to benefit from low interest rates, but may have to contend with rising home prices and competition from other buyers, depending on location. But what about the process itself? From mortgage application to move-in day, how does the homebuying process differ in the middle of a pandemic?
While the pandemic has spurred an interest in homebuying, it has also caused many hurdles relating to the process. You can’t simply show up at an open house – if open houses are being offered, you need to call ahead and schedule a time to view the property. You may be required to wear a mask while touring the house, both for your own protection and the protection of anyone currently living in the house. You will likely be offered hand sanitizer before and after your appointment. And you may need to allow additional time to schedule any viewings so that the sellers can arrange to thoroughly clean and sanitize the house before you arrive and after you leave.
However, some agents are offering virtual open houses. These may be live and interactive, or static and pre-recorded. While you still may want to view certain houses in person, having a virtual open house can be a helpful glimpse into prospective properties from the safety of your own home.
Making the Dream Home Come True
Once you’ve found your desired home, you’ll need to apply for a mortgage. This process has remained mostly the same since pre-pandemic, with the exception that if you were desiring to meet with your lender, loan officer, or broker in-person, that will most likely not happen. However, it’s very easy to apply for a mortgage online. One change that has occurred regards qualifying income. Understandably, many people are dealing with uncertainties regarding their employment and their finances. This presents additional risk to mortgage lenders. As a result, some lenders are requiring verification of employment on the day of closing. The process differs slightly from lender to lender, however, so be sure to check what your lender requires for verification of employment.
What about inspections and appraisals? Both are still being done, with some additional safety measures. However, some lenders have chosen to waive appraisals due to the pandemic. This can actually save the homebuyer a couple hundred dollars if they don’t need to pay an appraisal fee. And some appraisers have opted for “drive-by” appraisals (where only the exterior is viewed) or “desk-top” appraisals where a visit to the house is not required. It depends on your lender whether these options are available to you – some borrowers or some properties will be required to have a regular, in-person appraisal no matter what.
Just in Case...
With all the uncertainty around the pandemic and the home buying process, some real estate agents are even offering or requesting “Coronavirus Clauses.” These are basically acknowledgements that the timeline for the real estate transaction may take longer than normal, or may be interrupted unexpectedly (maybe someone involved in the process starts feeling sick, maybe lock-down orders go in effect again, etc.). If this happens, having a coronavirus clause can help buyers and sellers agree on an extended deadline as well as who keeps the earnest money if the transaction falls through. Coronavirus clauses are essentially force majeure provisions, which protect parties on a contract from unanticipated or uncontrolled events. However, having the specific coronavirus clause added can help offer an additional layer of protection just in case the pandemic interferes with the buying process.
Close the Door... On Your New Home!
Once everything has been settled and it’s time for closing, you may be wondering if the closing process has changed at all. Remote closings are possible, and are understandably becoming much more common. Normally, remote closings work via a combination of electronic signatures and physical signatures that have to be mailed and/or signed in advance. Having an agent or attorney who is experienced and familiar with remote closings can help to make the process go a whole lot smoother.
Finally, the last (and arguably, most exciting step) – move in day! If you’re at this step, you probably can’t wait to get to your new home. But with the coronavirus still causing a concern, there are some additional precautions you may need to take.
First of all, are you moving to a state that has travel restrictions, or from a state that is currently at high-risk for COVID? If so, you may need to self-quarantine for a minimum of two weeks, and possibly get a COVID-19 test. If this is the case, you will need to make sure you can comfortably stay in your new home for the required time period – this may mean bringing groceries with you before you move, or knowing how to order grocery delivery service once you arrive. (Just think of all the unpacking you can get done in that two weeks though!)
Moving and storage services, as well as rental trucks and vehicles, continue to be available, but each company has its own policies and practices, so make sure you do your research so that you know what to expect. Some moving companies used to do in-home quotes for services, but now most will offer remote or virtual quotes. This may involve you taking inventory of all the items that the company will need to move yourself.
Although normally you would explore your new hometown and meet your neighbors after a new move, this may no longer be possible to do right away. Instead, consider joining online groups and forums for people who live in your area. This can help you feel closer to your community as well as provide a resource for references that you may need, such as recommendations for a new dentist, suggestions for the best places to get groceries, and more!
Even if buying a new house was part of your long-term plan, nobody expected to be doing it during a pandemic. The process is more or less the same, with some additional precautions and some adjustments to interest rates and property values. Are you considering buying a home? You can compare rates right here on RateZip!