Now is an opportune time to purchase property and build real financial equity
Throughout the nation, real estate markets are evolving and adapting to the new realities of COVID-19. These new levels of adjustment are present in areas including technology, showing of properties, the manner in which sellers prepare for showings, lending standards, safety and health considerations, and in the overall understanding of the market’s psychology and energy.
Recognizing we live in a somewhat different world begs the question, “what does this mean if I’m buying or selling (or both)?” The largest driver of any housing decision is where and how people may want to live. It helps to reflect on some real estate history, combined with current events, to provide a clearer perception of the real (estate) world.
America’s financial systems look vastly different today than before the Great Recession (2008-2011). Massive changes took place, strengthening lending standards and allowing only credit-worthy borrowers to obtain mortgages. Clear proof of this success is amplified by default and foreclosure rates hitting all-time record lows.
America has had a housing shortage since the recession, with demand for homes consistently outpacing supply. Lawrence Yun, chief economist for the National Association of Realtors (NAR), predicts “that once we get through the worst of this crisis, housing demand will reemerge quickly. Our economic recovery won’t be a slow burn, like the 2008 financial crisis.”
Property ownership has become a financial rock during this economic challenge, and Congress has helped protect this investment, which remains the best opportunity Americans potentially have to reestablish long-term net worth.
By comparison, job losses during the Great Depression occurred slowly over five years, while during the current pandemic, unemployment rose dramatically in a three-month period. However, this was not attributable to problems related to the economy. Jobs have improved slightly (this may take a year or two) and a vaccine will be developed and tested (hopefully within a year), easing economic stress. In the 1930s, financial institutions (banks) simply failed, as opposed to the Federal Reserve getting immediately ahead of the crisis, averting any run on the banks. Yun also predicted home sales (not prices) could decline up to 15 percent this year, but may rise up to 18 percent in 2021, with modest value increases.
As of May 10th, 8.2 percent of all mortgages were in forbearance (giving homeowners up to a year’s worth of deferred payments), without impacting their credit. More than four million homeowners are now enrolled in a forbearance program. Recently, that number has been flattening, and there have been consecutive increases in weekly mortgage applications, as demand for homeownership grows.
As consistent and potential growing demand combines with hugely inexpensive borrowing costs, this leaves an incredible opportunity for buyers to purchase and build real financial equity, even though we are experiencing more of a seller’s market.
Sellers have started to get off the sidelines and homes are once again selling fast in most price ranges. Multiple offers are back in fashion for the lower-to-mid price ranges. A healthy domino effect begins with strong entry-level to mid-valued home sales. Those sellers are now positioned to purchase the mid-to-higher price points, bolstering all real estate sales.
Sellers may have the upper hand, but sharp negotiating skills, expert clauses with perfectly written contracts and knowing how to accommodate sellers can only help buyers. By working with solid, experienced brokers, buyers can navigate through escalation clauses, appraisal contingencies and desired timing issues. The expertise of a broker is not only valuable in presenting well-written offers, but provides the benefit of their preferred inspectors, lenders and other valued vendors.
New listings and pending sales increased substantially by the end of May, as reported by REColorado. New listings totaled 7,312 in May, up 56.4 percent from April, but down 16.87 percent from May 2019. However, Denver not only has new sellers, but also sellers placing homes back on the market while exercising current precautions. Pending sales in May were amazing, totaling more than 6,800 — a 115 percent increase over April and 12 percent stronger than May 2019.
The burning topic being asked most frequently is, how has COVID-19 most affected what buyers are looking for?
The concise answers are as follows:
- More efficient floor plans
- Flexible spaces/bonus rooms that can do double-duty
- A room that can house a Murphy bed
- More kitchen pantry space
- Good storage space (basements or place for storage shed)
- Home office flexibility — no more working in the kitchen
- Outdoor spaces — gardens and patios are highly desired
- Multiple generations living under one roof … includes young adult children, parents, and grandkids. They may all be a consideration or necessity.
Stay tuned! More trends and lifestyle dynamics are being considered.