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First Time Home Buyers Face Many Real Estate Challenges

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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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Amid the Pandemic, Mortgage Rates Set Records

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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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Recent Reports Show U.S. Foreclosures Trending Downward from 2019

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Despite the fact that many Americans have struggled financially as a result of the pandemic and subsequent shut downs that led to layoffs and business closures, foreclosures in the first quarter of 2020 declined almost 10% from the previous year.  Specifically, home mortgages backed by Fannie Mae and Freddie Mac, who entered into a conservatorship and have been working to implement foreclosure prevention.

While third-party foreclosures as well as foreclosure starts both saw drops in numbers in comparison to the first quarter of 2019, the number of forbearance plans rose from less than 7,000 in the first quarter of 2019 to over 170,000 in the first quarter of 2020.  Additional efforts to keep Americans in their homes and avoid foreclosure include loan modifications where homeowners have received lower monthly payments, principal forgiveness or extended term modifications.

According to an article published by DSNews.com, reported by Krista F. Brock, Freddie Mac and Fannie Mae, “Since entering conservatorship, Fannie Mae and Freddie Mac have completed 4.4 million foreclosure prevention efforts, with 3.7 million homeowners able to retain their homes as a result.”   The efforts are resulting in positive numbers with regards to loan performance as well.  The number of loans, according to the FHFA’s Report, between 60 and 90 days delinquent are showing slight declines from the end of 2019.

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Positive Trends in Home Purchases are Encouraging to Real Estate Professionals

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Across the country, Americans have been sheltering in place and practicing social distancing in an effort to help slow the spread of COVID-19.  Many normal activities have been modified or even put on hold.  With the slow reopening of the country, many potential home buyers have emerged and seem to be ready to take the leap into home ownership.

Mortgage applications, according to an article published by CNBC.com, rose for the fourth consecutive week, up by an encouraging 11 percent.  Despite the fact that, overall, mortgage applications are still about 10 percent lower than they were this time in 2019, it appears the gap is closing.

The article, written by Ty Wright, quotes MBA economist Joel Kan, ‘”We expect this positive purchase trend to continue — at varying rates across the country — as states gradually loosen social distancing measures, and some of the pent-up demand for housing returns in what is typically the final weeks of the spring home buying season.”’

Despite the fact that refinance applications have been on the decline, after a very busy early spring, it appears home purchases may fill that gap. In fact, according to the article, mortgage applications are up pretty significantly, “New York led the purchase demand with a 14% jump in those applications. Illinois, Florida, Georgia, California and North Carolina also had double-digit increases last week.” It seems buyers, anxious to return to some normal life activities and move forward with purchasing their first or next home, are encouraged by mortgage rates that are still below 3.5% for a 30 year period.

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Why is Real Estate an Essential Business?

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As the nation, and most of the world, cope with the spread of COVID-19, many have been asked to stay at home, except to perform essential business.  As a result, many businesses have been required to close their doors for the time being, deemed “non-essential”.  However, a number of industries have been designated “essential businesses”, and, therefore, continue to operate.  One of these essential industries is real estate. 

Forbes published an article written by Dima Williams.  ““Life’s basic needs are food, water and a roof over your head, which makes real estate an essential service,” Florida Realtors, that state’s largest trade association, wrote late last month’, Williams writes. Many aspects of the real estate industry are deemed essential such as settlement services; staff that perform title search, notary and recording services for real estate transactions; leasing of residential properties; property management and maintenance; and construction. 

Despite the fact that life seems to be “on hold” for many people and businesses, the fact is that many life changes continue to occur during the pandemic.  This includes people needing to find housing due to homes being sold and landlords providing notices.  Nevertheless, the method in which these aspects of real estate continue to be executed may have changed a bit.  For example, appraisers may complete a “drive by” appraisal, home buyers view homes via virtual tours and when a home is sold, it may be completed via a “drive thru closing”.  

Its clear that important work continues to be done by these professionals, helping bring some glimpse of normalcy to the professionals as well as the clients that need them.

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How Does the Shelter-in-Place Order Affect Your Real Estate Transaction?

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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:

Cash Transactions

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.

Conclusion

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.

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Buyers, Sellers and Realtors Responding to COVID-19

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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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Will Coronavirus Affect the Real Estate Market?

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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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Do Buyers Really Need a 20% Down Payment To Buy a House?

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Many homeowners may remember setting aside money each month in order to save the 20% down payment necessary to purchase a home, especially to avoid having to pay PMI (Private Mortgage Insurance.)  However, more and more first time home buyers are deciding to purchase a home before they have saved the 20% down payment.

According to an article published by Business Insider, reporter Liz Knueven states, “For many young Americans struggling with student-loan payments, higher rent costs, and relatively stagnant salaries, saving a fifth of a home’s value to get a mortgage simply isn’t on the radar.” 

Real estate professionals aren’t against the idea either.  For first time home buyers, especially near large cities where home values are steep, saving the 20% down payment can take many years.  Instead of saving the cash, buyers can purchase a home and begin building equity, even while paying the PMI of .3%-1.2%.  As the home builds in value, homeowners may be able to drop the PMI, once the mortgage value reaches 78%-80%.

Despite the decrease in home buyers waiting to have the 20% down payment, there are still advantages to a larger down payment if its possible.  It can help edge out competition in a multiple offer situation on a home, can help secure a lower interest rate and save the cost of the PMI each month. 

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Real Estate Experts Weigh In on Cause of Low Housing Inventory

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Real Estate professionals and analysts have continued to look into why there continues to be a decrease in housing inventory along with rising home prices.  Redfin has determined that more Americans are deciding to stay exactly where they are instead of moving on to another home.  In fact, they have found that, “the typical American homeowner is now staying in their home for five years longer than they did just nine years ago.”

In an article published by Housing Wire, reporter Julia Falcon states that the average homeowner in the U.S. is staying in their home for about 13 years instead of only 8 years as they did in 2010.  There are U.S. cities that blow those statistics out of the water with homeowners deciding to stay in their homes for 20 years or more.  Cities such as Salt Lake City, Houston, San Antonio, and Dallas are in Texas see home owners that have stayed in their homes since the 1950s. 

According to the article, “Redfin agent Christopher Dillard states ‘Because prices have been going up, and folks are gaining more and more equity, it’s hard to justify selling when there aren’t many if any affordable options.’”

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