Spring is here, which traditionally brings with it a home-buying frenzy. May, June, July, August make up 40 percent of annual home sales volume.
Of course, 2020 is unlike any year we’ve ever seen. The coronavirus has dented the confidence of American homebuyers, many of whom are rethinking a purchase altogether.
Over a third of buyers looking to purchase a home in the next six months are postponing their purchase because of the pandemic, leading to six in 10 sellers feeling less optimistic about completing their sale.
This does not bode well for the U.S. economy. There is no better indicator of economic health than home-buying, as it transcends socioeconomic status and industry of employment, shedding light on consumer confidence writ large. When home buying drops, anxiety and fear have surely gone up.
But there isn’t necessarily a reason to be anxious or afraid! Cautious homebuyers can and should take advantage of the coronavirus.
First, it’s important to understand the landscape. Mortgage rates are near record lows. The 30-year fixed-rate mortgage recently dropped to an average of 3.33 percent — down from 4.12 percent a year ago. The 15-year fixed-rate mortgage, meanwhile, has fallen to an average of 2.77 percent.
Low mortgage rates translate to higher buying power. For example, borrowing $250,000 at 3.5 percent now costs $144 less per month than at 4.5 percent one year ago. Securing a mortgage now can save homebuyers tens of thousands of dollars over the years.
That is one upside to a depressed real estate market. Another is increased buyer leverage: With most sellers feeling less optimistic about their prospects, the average seller is more desperate to sell.
From a seller’s perspective, it’s a nightmare. As a real estate broker, I’ve witnessed the nightmare firsthand: Because of the coronavirus, we’ve seen numerous buyers pull out of an agreed-upon purchase. Leverage is not on the side of the seller scrambling to find demand.
On the flip side, leverage is on the side of the buyer who encounters scrambling sellers. Homebuyers have an opportunity to negotiate below-market purchases — a home that is $25,000 or even $100,000 cheaper now than a year ago.
But they must tread cautiously. Even as mortgage rates approach record lows, borrowers are struggling to find lenders who will provide the loans in uncertain economic times. This means that more due diligence is necessary: Homebuyers need to do their research on competing lenders, and approach various options. Whereas going to one or two may have been enough a year ago, it is now time to inquire about four or five different lenders.
Once you find the right one, be prepared for a delay in securing that mortgage. Like other industries, mortgage lenders are facing upheaval due to the pandemic — from complying with government policies to adjusting to remote work.
There are also other considerations. For instance, “force majeure” clauses (e.g. “act of God” clauses) do not apply to all mortgage payers. Because the coronavirus is unprecedented, many borrowers who have been financially affected by the pandemic see the “act of God” as an opportunity to get out of paying off a mortgage, either temporarily or permanently.
Think again. “Force majeure” often does not apply, since it requires the applicable party to take “all reasonable steps” to avoid non-performance (e.g. inability to pay). Similarly, it must be clearly established that the coronavirus is what caused non-performance, and not a host of other factors.
Again, tread carefully. If you secure a mortgage, do not blindly assume that you’ll be freed of repayment obligations because of the coronavirus. Secure that mortgage with the assumption that you’ll have to pay it off in full. Buy accordingly.
But the bottom line is this: American homebuyers can and should still look for homes. There is no better time to find that right price — from the purchase to the loan funding it. The U.S. economy depends on home-buying, and homebuyers must be encouraged to explore their options.
Now is not the time for anxiety and fear. Now is the time to take advantage of the situation.
