One of the National Association of Realtors “30 Under 30” real estate agents, serving the Del Mar and San Diego luxury residential market.
Just a few months ago, the real estate market – like many other industries – adopted a slower pace in response to Covid-19. Social distancing regulations prohibited in-person house showings in most parts of the country, and the future of buying and selling a home in the U.S. seemed uncertain.
Today, as regulations begin to lift, many are seizing the opportunity to buy a home that supports their health and happiness in society’s “new normal.” Though the national unemployment rate is still high, those who are working remotely have discovered they need more from their homes, including backyard space and private offices or “Zoom rooms.” For essential workers with high job security and strong cash reserves, now is the time to capitalize on record low interest rates and get the most house for their buck.
Inventory was already limited before the pandemic; now, there may be more competition and even bidding wars for affordable homes as well as homes in luxury markets. According to a recent survey of 1,000 homeowners who bought a home between January and May of 2020, 42% engaged in a bidding war.
Buyers also report that increased competition correlates with increased stress. But buying a home that affords a more comfortable and productive lifestyle – especially as we ride out this pandemic – should ultimately lower your stress and anxiety. Here’s what you need to know about the current state of the market – whether you’re buying, selling or both.
Boomers may boost millennial homebuyers.
Before Covid-19, the U.S. was already on the cusp of the greatest wealth transfer in history. Over the next 10 to 20 years, $30 trillion is expected to change hands between boomers, America’s wealthiest generation, and millennials, now in their twenties and thirties. The pandemic, as well as changes to estate plans, might expedite this process, incentivizing both boomers and millennials to invest in real estate.
For millennials who are buying their first homes or scaling up to accommodate growing families, their inheritance might be better invested now instead of later. And for boomers hoping to avoid assisted living in the aftermath of Covid-19, helping their children and grandchildren invest in larger, multigenerational homes is also extremely appealing.
Cash bids are powerful, but so is being able to negotiate terms.
The increase in competition means buyers are more likely to bid cash. Now is not the time to low-ball an offer on a house you’re serious about. It is, however, the time to seize a competitive advantage by being flexible on your terms.
In addition to submitting an offer above the asking price, buyers are more likely to rein in home inspections and cover the costs of closing and/or an appraisal gap. Buyers can also gain a competitive advantage by tightening or eliminating mortgage contingencies. Because people have an increased sensitivity to being displaced from their homes during a pandemic, rent-backs (where sellers pay buyers “rent” to stay in the home past closing) are becoming more common.
Since many are saving cash by eating in more and traveling less, they’re more willing to pay double mortgages than face double escrows. Likewise, buyers considering more permanent lifestyle changes are willing to pay extra for their forever home. For both buyers and sellers, the priority is to move in the most opportunistic and least stressful way possible.
Interest rates are low, but lending is tight.
As the market recovered from the 2008 financial crisis, lending requirements eased, especially as millennials entered the market. According to Zillow, only 43% of Americans who purchased homes in 2018 put down at least 20%.
In today’s economy, however, lenders are requiring higher credit scores and bigger down payments, especially when it comes to jumbo loan products. We’ve even seen lenders ask buyers for proof that their salaries won’t change over the following 12 months. If buyers can’t answer these hard asks, they may have to put more money down.
Buyers and sellers may hit speed bumps with lenders, and sellers should be flexible around the final approval of loans, since ultimately this is outside of their control.
Buyers are upgrading in a big way.
All of the buyers I work with have said this is the most they have ever wanted to size up. Those seeking more space are now willing to move farther from metropolitan areas to suburban and country homes with larger yards. And though more buyers are ready to part with the convenience and walkability of city life, they’re still looking for homes that are move-in ready with finished backyards.
Even though consumers are generating most of the current market activity, investors are waiting for properties to hit foreclosures to see which market they can afford to join. As long as interest rates remain low and people are gainfully employed with good cash reserves and not a lot invested in the stock market, they are in a good position to buy. Over the next 45 to 90 days, we’ll start to see more clearly how these trends play out, but the future looks much brighter than we expected it to, just a few short months ago.