First time home buyers who decided that 2020 would be the year they would leap into home ownership were met with a variety of challenges, economically, personally and emotionally. Obviously, the pandemic has had effects that are wide-reaching; the real estate market has not been immune.
In an article published in the Chicago Sun Times, the effects of COVID-19 on the real estate market are detailed. To begin, as fears of becoming ill with the coronavirus spread, home inventory dropped as homeowners feared having strangers in their homes for showings. In fact, the inventory dropped 20% in June in comparison to June 2019.
Nevertheless, there were still many Americans searching for homes and with mortgage rates falling, many more prospective home buyers began to enter the home search as well. With the influx of buyers searching the low inventory of homes, buyers found themselves in competition with other buyers; homes were purchased quickly and sometimes secured offers above their asking price.
This type of real estate market can be intimidating and frustrating for anyone trying to purchase a home. However, the impact on first time home buyers has been significant. The price of homes has risen faster than incomes, making more and more homes unaffordable for these prospective home owners.
To help prepare mentally and financially for the bumpy road that may lay ahead for these first time home buyers, article details some important tips and reminders for first time home buyers and their agents.
These buyers should expect some disappointment in the home buying process and be aware that they might not be successful in purchasing a home immediately. However, it they stay the course, most likely, the results will eventually be in their favor.
To avoid the emotional pitfalls of home buying, buyers should know up-front how much they are willing to spend on a specific home. This will allow them to walk away before over paying or letting a deal fall through over a few hundred dollars.
An important step to take to prepare for the home purchasing process is to get pre-approved for the loan. Knowing a buyer is pre-approved can help a seller feel more confident about the buyer’s ability to complete the purchase and can give the buyer a leg up on competition.
If the current state of the real estate market is too overwhelming and homes are beyond a buyer’s financial reach, the last bit of advice is to consider waiting. Perhaps the market conditions will change in the next few months and a buyer can secure some additional funds for a down payment to put down on that perfect home.
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As residents of the U.S. sort through the many updates on the progress of containing the outbreak of COVID-19 cases, anxiously await news for a vaccine and patiently waiting to find out when life will return to some sense of normal, the U.S. economy fluctuates with the positive and not so encouraging updates. Most recently, the news of the economic uncertainty due to the pandemic has impacted mortgage rates, yet again.
According to an article published by CNN, mortgage rates recently dropped below 3% for a 30 year mortgage. This drop marked a 50 year record low for mortgage rates. As a result, many home buyers, and those that were sitting on the fence debating purchasing a home, have decided that there’s no time like the present to make the move. The demand for homes has increased, especially since the lower rates has allowed more prospective home buyers to afford homes that might have been just beyond their reach just a few short weeks ago.
However, just as the daily news cycle is filled with promise coupled with concerning medical and economic updates, the good news about rates is wrapped with a warning of what may be on the horizon. Since the rise in coronavirus cases seems to be surging again, more job layoffs and even job losses could be inevitable. Obviously, as unemployment rises, home buyers can be hesitant, if not unable, to purchase a home.
As the article quotes Danielle Hale, chief economist for Realtor.com, things could look up soon, “On the upside, signs of progress toward a coronavirus vaccine give hope that there’s a path to a new normal where health concerns don’t dominate decision making.” We all hope that comes sooner rather than later.
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At first glance, reported home sale prices that only increased .5% year over year in May 2020 might appear to be disappointing news for real estate professionals and their customers. However, according to an article published by Redfin.com, the slight gain was mostly impacted by the small number of homes selling in expensive U.S. cities. Further, Redfin’s lead economist Taylor Marr sees some positive news based on other spring sales numbers, stating, “Although the housing market was still mostly stalled in May, it’s worth noting that homes under contract to be sold jumped 33% between April and May after two consecutive months of decline. This is a key leading indicator for home sales in June and July. New listings of homes for sale have also likely passed their bottom…”
Nevertheless, the market still has a ways to go before it is back on track to performance during the pre-COVID-19 shut down. Although all large metro areas in the U.S. have seen significant declines in home sales as compared to last spring, areas such as Michigan and Pennsylvania saw decreases of over 60%. These are examples of a couple of states that were the most restrictive for staying at home during the pandemic’s initial outbreak.
Yet, good news appears to be on the horizon. New listings, according to the article, increased almost 36% from April. Additionally, days on the market and number of homes selling above list price remain positive, signs of a strong buyers’ market continued throughout the state wide shut downs, due to continued low inventory of homes and low mortgage rates.
Read the entire article for more details and highlights across the nation’s metro areas.
The global pandemic brought the U.S. real estate market to a screeching halt during the spring months of March and April. With stay at home orders in place and uncertainty among Americans about the best ways to stay safe from the spread of COVID-19, many sellers decide to hold off or cancel listing their home for sale. However, May has brought loosened restrictions for business and social interactions, leaving Americans feeling that it may be safer to resume some activities that had been put on the back-burner. Specifically, Americans that want to purchase a new home are beginning to ramp up their search and even make offers to purchase homes.
However, the fact remains that the number of homeowners listing their homes had been steadily declining. And despite a small up-tick, the supply for homes continues to be low, down by almost 30% annually as of the first week of May. Nevertheless, there is a significant number of potential home buyers that are looking to take advantage of low mortgage rates. Not to mention, many Americans have spent more time in their current homes during stay at home orders, helping them realize they need a larger home, perhaps a home office or more outdoor space. These factors have helped drive up the demand for homes in many parts of the U.S.
CNBC.com published an article by Diana Olick that describes a major uptick in bidding wars for homes as a result of the mismatched supply and demand. In fact, the article says, “More than 41% of homes faced a bidding war in the four weeks ending May 10, according to Redfin.” Realtors in areas such as Boston, San Francisco and Fort Worth, Texas, indicate that more than 60% of purchase offers are met with competition from other buyers.
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It may not come as a surprise to read that the housing market has been affected by the COVID-19, but many home owners and potential buyers may be curious what experts think the future holds for this year’s real estate market.
As stay at home restrictions coupled with fears of the spread of the pandemic began in March, pending sales on homes took a direct hit. In fact, they fell 20.8% in comparison to February. According to an article published by CNBC.com, the housing market had already been impacted by a shortage of homes for sale. As the news and impact of COVID-19 settled in, the shortage became more drastic as owners decided not to list and some homes were actually de-listed.
However, experts believe, according to this piece written by Justin Sullivan, that this impact should turn around. Quoting Lawrence Yun, NAR’s chief economist, “The housing market is temporarily grappling with the coronavirus-induced shutdown, which pulled down new listings and new contracts. As consumers become more accustomed to social distancing protocols, and with the economy slowly and safely reopening, listings and buying activity will resume, especially given the record low mortgage rates.”
After 5 weeks of decreasing mortgage applications, there was recently a double digit rise in mortgage applications. And, although the home sales may be low for the year, home prices should not be impacted. The fact that there is still a shortage of homes and the mortgage rates are low enough to attract buyers, prices could see some significant increases.
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The impacts of COVID-19 are far-reaching and include not just health concerns, but concerns about jobs and the economy. An obvious result of the turbulent economy and the alarming rate Americans are losing their jobs is a down turn in the real estate market.
According to an article published by Market Watch, “…the rapid rise in unemployment as a result of the coronavirus pandemic and its accompanying stay-at-home orders will curtail many Americans’ ability to afford a purchase as big as a home”, states reporter Jacob Passy. Further, sellers are more hesitant to put their homes on the markets due to uncertainty about pricing and the desire to avoid strangers from entering their homes unnecessarily.As a result, Fannie Mae projects that home sales will fall by almost 15% in 2020.
Yet, this doesn’t necessarily translate to bad news the prices of homes. Fannie Mae still expects the median prices of homes to rise for both existing and new homes. Further, the article states, “The mortgage giant currently expects the U.S. economy and home sales both to rebound in 2021. But that rebound is contingent on the pandemic’s trajectory.”
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On Saturday, March 21, 2020 at 5:00 p.m., Governor, J.B. Pritzker issued a public order (“Order”) directing Illinois residents to shelter-in-place. The shelter-in-place is, for now, effective through April 7, 2020. During this time frame, how is your real estate transaction going to be affected?
The short answer is that real estate transactions will proceed as planned. Under the Order, there are several exceptions or permissible activities that may still be performed. These are called “Essential Businesses and Operations.” Under this category, Financial Institutions (i.e. banks, title companies) and Professional Services (i.e. legal services, accounting, appraisals) are allowed to continue operating. As such, real estate transactions can proceed as planned and deals can still close during this period.
However, as an added precaution and based on recommendations from the title companies in our area, the following procedures will be followed:
All cash transactions will be closed electronically via e-mail and/or DocuSign. Any funds to be provided at the closing will need to be sent via wire transfer to the title company. Documents required by the title company to be an original (i.e. Deed) should be dropped off or sent via overnight courier to the title company prior to closing. Once the transaction has concluded, copies of the pertinent documents will be sent via overnight delivery to all parties. Any proceeds due will either be wired or a check sent via overnight delivery. There is also the option to pick up your documents and check at the title company.
Transaction with a Lender
Seller(s): It is very common for sellers to sign their closing documents in advance, give their attorney a power of attorney for closing day and not attend the closing. Our office has always offered this service and will continue to do so during this time period. Moreover, title companies are encouraging sellers not attend closing and send their documentation prior to closing. Therefore, for our seller clients, our office will coordinate with you to get your signature on the necessary documents in advance of closing. The few documents requiring signing on the day of closing we will execute on your behalf under a power of attorney.
Once the transaction has concluded, copies of the pertinent documents will be sent via overnight delivery to all parties. Any proceeds due will either be wired or a check sent via overnight delivery. There is also the option to pick up your documents and check at the title company.
Buyer(s): Due to the fact that many loan documents are required to be wet signed and notarized, buyers must still attend the closing. Title companies are requesting that only the buyers required to sign the loan documents and their attorney attend the closing, so as to limit the number of people at the title company. The title companies have implemented some safety measures to ensure a safe and clean environment. All closing rooms will be cleaned with disinfectant after every closing. The pens used will be new and disposed of after closing. Also, they will limit the number of people allowed in the facility and practice social distancing recommendations when possible. Some title companies are also offering drive by closings, where buyers can pull up, sign the documents in their car, and hand them back to the title representative.
Once the transaction has concluded, copies of the pertinent documents will be sent via overnight delivery to all parties. Any proceeds due will either be wired or a check sent via overnight delivery. There is also the option to pick up your documents and check at the title company if you choose to wait after signing.
In short, your real estate transaction should proceed as planned with just some slight modifications for the closing. Lenders, attorneys and title companies are still working during the shelter-in-place period. Fournier Law Firm, Ltd. is committed to assisting our clients in making your closing as smooth as possible. As your closing nears, our office will be in contact with you to coordinate the necessary steps to get your deal closed.
The real estate market, like most areas of business world-wide, are adjusting to social distancing recommendations while trying to anticipate how the global pandemic will affect the economics of their business.
Economically, the mortgage rates are still low which, normally, would result in more buyers looking to secure a low rate and purchase a home. However, the economic uncertainty might keep some buyers from moving forward with a large purchase such as a home, and may keep sellers from listing their home if not necessary.
An article published by OCRegister.com indicates that some areas of the country are already seeing how the concerns about the economy are impacting both sellers’ and buyers’ decisions. “I am hearing (of) buyers and sellers cancel (deals) due to fear of job security and, really, just the unknown,” said Dilbeck Real Estate agent Lisa Kaul from the Santa Clarita area. “One seller canceled their new purchase even though their home was already sold.”
Of course, there are plenty of homes on the real estate market and many buyers who are still planning on purchasing a new home. However, the social distancing recommendations has impacted the way buyers are viewing homes for sale. Many owners are asking that their realtor not hold open houses. Guidelines for screening potential buyers for diseases, requiring those visiting homes to sanitize their hands are top discussions among sellers and their realtors. In this age of technology, however, virtual tours are becoming more and more common and are an ideal alterntative.
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News of the coronavirus is a constant in all mainstream media lately. Its impact is far reaching, not only as Americans and citizens of the world take precautions to stay healthy, but economically and on a global level. As a result, last Tuesday, the Federal Reserve made a decision to make a rate cut, in anticipation of recession concerns.
According to a Realtor Magazine article published last week, the rate cut was significant, the largest one time cut since 2008. The impact of this decision could, in time, affect the real estate markets. According to Lawrence Yun, chief economist at the National Association of Realtors, “The real estate sector will hold up very well because of the rate cut. Hesitant home buyers will be enticed to take advantage of low interest rates. Commercial property prices will rise due to higher returns that can be had from the bond market after adjusting for risks.”
Some experts believe that rates which are now averaging 3.45% could drop even lower before the economy rebounds from the effects of coronavirus. Mortgage rates low as 3% have not been ruled out by Rick Sharga, president and CEO or CJ Patrick Company.
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Photo Credit Sergio Santos
As 2019 comes to a close, the trends of the real estate market for the past year are being reviewed an analyzed. However, just as it is with all new beginnings, there is also much anticipation and speculation about what 2020 will bring for real estate professionals, home owners and potential homeowners. Unfortunately, some real estate experts are not seeing much change in the low housing inventory trend in the coming year.
In an article published by Forbes, written by Aly J Yale, Yale states, “…According to the 2020 National Housing Forecast from Realtor.com, the national housing shortage will continue in the New Year, possibly reaching “a historic low level.” Inventory growth is absent in nine out of ten markets, down from a much more optimistic two of three markets seeing growth at the beginning of 2019.
Contributing to the problem, homeowners are remaining in their homes longer, averaging 13 years. Additionally, although home construction has seen growth, most of the new homes are “upper-tier” homes. This leaves entry home buyers little supply in contrast to the large demand. With homes for sale in the lowest price tier down 10 percent through 2019.
Some positive news to look forward to are the anticipation of mortgage rates remaining low and home prices remaining steady, maybe declining in some markets.
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Photo Credit: Mark Moz