Home sales dropped to their lowest point in a decade in April, declining by almost 18 percent. The primary reason for the decrease is the coronavirus pandemic, which has wreaked havoc on the U.S. economy and the livelihoods of tens of millions of Americans.
The large drop in home sales, however, comes with both advantages and disadvantages for aspiring homebuyers. Here’s what to keep in mind if you’re thinking about buying a home in the near future.
Current listings are more attractive—and expensive
One of the reasons for the decrease in home sales is due to an inventory shortage. The supply of homes for sale dropped by nearly 20 percent from a year ago, giving homebuyers fewer options.
This reduction in supply makes what’s currently available more attractive. But when the demand for anything is greater than the supply, it also increases competition between buyers, which results in higher home prices.
Interest rates will have more people looking to buy
While tight supply and higher home prices may be less than ideal, record-low interest rates may increase demand even more. Interest rates have dropped significantly since the Federal Reserve cut its target rate in March. See what kind of rates you qualify for now by inserting some information into this free online tool.
According to Freddie Mac, average interest rates for a 30-year and 15-year fixed mortgage are 3.18 percent and 2.62 percent, respectively. For a $300,000 mortgage loan, those rates could translate to a principal-and-interest payment of $1,294 on a 30-year loan and $2,017 on a 15-year loan.
It’s crucial for mortgage borrowers to take time to shop around and compare rates from multiple lenders before you settle on one. Credible allows you to compare multiple options in one place, speeding up the research process.
People are moving from urban areas to suburban homes
Another reason for home price increases is the 31.6 percent drop in existing condominium and co-op sales from last year. This trend may signal a shift in consumer interest from urban areas with smaller living spaces to the suburbs, where homes and yards are larger.
As a result, expect suburban homes to experience higher demand and prices, especially compared with urban housing options.
How to navigate buying a home during a pandemic
As you consider your homebuying options, it’s important to think about both the current state of the market and your current personal financial situation.
Depending on your situation, it may be best to wait to buy a home, especially if you’re not in a position where moving is necessary. One reason is that as the market normalizes again, it could reduce competition with other buyers and potentially even cause prices to go down.
Also, even if your job situation is stable right now, there’s still a lot of uncertainty in the near future, and shelling out cash for a down payment and locking yourself into a mortgage payment could exacerbate any financial difficulties that arise.
If you’re aware of the potential pitfalls but still want to proceed, here are some steps you can take to navigate a volatile home market:
Take steps to improve your credit: The better your credit looks, the easier it will be to get preapproved for a loan and make an attractive offer for sellers. Check your credit score and credit reports to find areas that need work and take steps to address them.
Shop around: The best way to save on your new mortgage loan is to shop around and compare mortgage rates from several banks. With Credible, you can get an idea of how much home you can afford, compare lenders and rates and get a pre-approval letter, all in one place.
Hire a real estate agent: An experienced realtor can help you navigate the current housing market by giving you advice on where to look, helping you put together an attractive offer, negotiating with sellers, and explaining potentially confusing mortgage terms.
As you take these steps, you may be able to take advantage of some of the benefits of the present state of the housing market without suffering too many of the drawbacks.