Buying a house doesn’t look like it once did. Since the COVID-19 outbreak worsened in mid-March, the … [+]
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Homebuyer demand may have waned in recent weeks as the COVID-19 outbreak worsened, but that doesn’t mean it’s gone entirely.
In fact, according to Fannie Mae’s Home Purchase Sentiment Index, over half of Americans still say it’s a good time to buy a home.
Does that mean the road to a home purchase will be easy? Definitely not. With social distancing orders in place across the country, real estate and mortgage professionals have had to significantly alter their processes. Throw in that sellers are more hesitant to have buyers (or anyone, for that matter) on their properties, and you have a transaction process that’s virtually unrecognizable compared to a few months ago.
Are you considering buying a home during the current health crisis? Here’s what you can expect.
You’ll likely face less competition.
Buyers are still out there, but they’re dwindling. According to recent data from real estate brokerage Redfin, buyer traffic was down 25% year-over-year last week.
“The dynamics of the market have totally changed,” says Redfin agent Daniel Close. “The spring market is traditionally a seller’s market, with many buyers feeling a lot of pressure from competing offers and stress with homes selling very quickly. There is still demand for homes, to be sure, but the power dynamic is much more balanced. Many sellers are uncertain about the state of the economy and more nervous about selling their home, which gives buyers increased power they normally don’t have, especially this time of year.”
To be fair, a 25% dip is an improvement compared to the previous week (when demand dropped 36%), but considering January and February saw significant jumps in the opposite direction (demand was up 27% both months), it’s a pretty notable decline nonetheless.
Seller sentiment will probably compound the problem, too. According to Fannie Mae, 36% of Americans think it’s a bad time to sell a house and almost a quarter think home prices are about to drop.
Here’s how Doug Duncan, senior vice president and chief economist for Fannie Mae, explains it: “Attitudes about the current home-selling environment deteriorated markedly, falling to their lowest level since January 2017. A survey record one-month drop in optimism about the direction of the economy appears to have weakened consumers’ views of both the current home-selling and homebuying environment, though the latter is likely buffered in part by low mortgage rates. It’s also a pretty hefty decline.”
You may have to tour homes digitally.
Gone are the days when you could just hop in your Realtor’s car and drive from showing to showing, family in tow. Thanks to social distancing orders, the bulk of home tours are now conducted online.
Your agent might FaceTime or Zoom you while walking the home, or you might rely entirely on pre-recorded videos, 3D walkthroughs and interactive floor plans.
The point? In-person tours just aren’t happening much anymore—and the data proving that is pretty astonishing.
Zillow has reported a 408% jump in agents using its 3D home tour feature, and Redfin saw a 500% uptick in video tour requests in just one week. Yesterday, Realtor.com even added a feature that allows for livestreamed open houses.
“Today’s buying experience has gone completely virtual,” says Gill Chowdhury, a broker with Warburg Realty. “It’s still possible to negotiate for, contract and close on a property, but you’ll have to be comfortable with doing it without the in-person visits.”
In some markets, agents are still doing in-person tours, but they’re pretty limited. According to Stephanie Beckwith, a Redfin agent in Atlanta, they just don’t look like they used to.
“For those who prefer to tour in person, we tour two at a time in a home, six feet apart with all of our personal protective gear on,” Beckwith says. “Sellers usually have the doors open and lights on so buyers do not have to touch anything while in their homes. We are asked to leave the doors and lights on as we exit the home. In addition, there are gloves, masks and hand sanitizer in most homes with notes saying please do not touch anything.”
You’ll probably have fewer options.
The supply of for-sale homes was already low prior to the coronavirus outbreak, and over the past few weeks, the problem has only worsened. According to data from Zillow, new listings are down 27% over the year and 19% since March 1 alone. The total number of active listings is now 8% lower than this time last year.
Listings are down the most in Detroit, where they’ve dropped 61.8% in the last month. Pittsburgh, New York, Philadelphia and San Francisco have also seen significant drops.
Though not every city is seeing big declines (a few have actually seen upticks), you can largely expect to have fewer options when shopping for a home in today’s market.
Fortunately, that could be a good thing, according to Chowdhury.
“While there is much less inventory on the market than there was this time last year, those who seek tend to find,” he says.
You might need a higher credit score.
If you’re going to finance your home purchase, then take note: lending standards aren’t what they once were. While FHA loans technically require a 580 credit score and 3.5% down, most lenders just aren’t willing to take that kind of risk right now.
FHA lending has significantly tightened, and major players like JPMorgan Chase have announced sweeping changes to their loan requirements. As of early this week, Chase now requires a 700 credit score and 20% down for any new home loan. Online mortgage lender Better.com has also bumped its minimum credit score to 680 due to heightened risk.
According to Mat Ishbia, president and CEO at United Wholesale Mortgage, the exact standards you’ll be held to will vary greatly by lender, so you can expect to spend more time shopping for your loan, too.
“When it comes to the loan itself, lenders across the country have tightened up on the types of loans they are comfortable doing,” Ishbia says. “There is now a large disparity from lender to lender when it comes to the loan options available to borrowers.”
You might need more money down.
With forbearance requests surging and a looming wave of delinquencies and foreclosures on the horizon, lenders need to protect themselves—and the investors they sell loans to—at all costs. And asking for more money down? That’s one form of protection.
Chase’s new standards are just one such example. Some lenders are also asking that borrowers have more in cash reserves—yet another way to lessen the risk. Better.com, for example, is now asking for three months’ reserves, which means borrowers need enough in the bank to cover at least three months of their projected mortgage payments.
Sarah Pierce, Better.com’s head of sales, says the move is “protecting Better in the current economically uncertain environment.”
“Due to market uncertainty caused by COVID-19, Better.com has tightened its credit standards in response to borrower repayment risk due to worsening economic conditions,” Pierce says. “This should mitigate some anticipated repayment issues for the riskier loans, which comprise less than 15% of the loans Better.com usually funds.”
You may need to go it alone.
Social distancing rules don’t just impact the home-touring part of the process, but literally every touchpoint along the way. They could impact where you close on your loan, who signs your paperwork, and how you interact with home inspectors, title agents, notaries and more.
And if you’re buying a home with a spouse or partner? It might mean going it alone—or taking the backseat yourself.
According to Tania Isacoff Friedland, a broker with Warburg Realty, it may even require some extra legal work.
“In every aspect of the transaction, the number of people present at one moment in time, whether that’s for a walkthrough, showing, closing, will be more limited,” Friedland says. “That might mean if a couple is purchasing a home, only one of them attends the closing and the other one gives power of attorney, or both of them do, and maybe brokers aren’t wanted at closings anymore for a while.”
Your employment might be verified several times.
In another move to offset risk, lenders are also being extra careful about verifying borrower employment—an especially important move as unemployment surges across the country.
While you could usually expect a single employment check once along the way, many lenders—United Wholesale included—are actually verifying job status multiple times. This might require a verbal or email confirmation from your employer at the last minute, or your lender could ask for an updated pay stub or direct deposit statement showing your most current earnings.
It’s a minor change in the process, but it’s one to keep in mind—especially if you’re anticipating job loss or a cut in wages.
There might not be an appraisal.
In most cases, if you’re planning on financing your home purchase, you’d need to get the home appraised before your loan will go through. In the current climate, though, many home sellers are hesitant to let appraisers on the property (and appraisers are equally as hesitant to enter strangers’ homes).
As a result, appraisals have gone more hands-off. Many appraisers have opted for desktop and exterior-only evaluations, simply driving by the house and using available public records, comparable sales and other data to establish valuation.
If one of these alternatives isn’t an option, your appraisal could come long after you’ve moved into the home. Earlier this week, the Federal Reserve announced a 120-day window on appraisals for FHA, USDA, VA and Fannie Mae/Freddie Mac-backed loans. Borrowers with these mortgages can now have their homes appraised up to four months out from their closing date.
Your closing might be digital, too.
Depending on where you’re buying a house, there’s a chance you won’t even sit down at a closing table. You might sign your documents digitally, have a video chat with a digital notary, and finalize your entire transaction entirely online.
Though not all lenders offer e-closings, many are quickly adopting solutions that enable them. Guild Mortgage, for example, just partnered with eOriginal this week, a top e-closing technology provider.
According to Mary Ann McGarry, CEO of Guild, “This is a critical time for the mortgage lending industry in needing to find more efficient and secure solutions for completing a mortgage transaction while limiting personal contact and keeping people safe.”
When e-closings aren’t possible, many lenders and title companies are opting for drive-through closings, meeting buyers in parking lots to hand off documents through windows and sign contracts in cars. In these situations, agents often attend—at a distance—in their respective cars.
“Our clients like to FaceTime us while they are attending the closing so we can take part in their experience,” Beckwith says. “Also, some of us wait outside of the closing in our cars in case our buyers need additional help. We are there to lend support and celebrate with them by waving from afar as our client exits their closing. We have been with our buyers throughout their whole homebuying process and we want to share in their excitement by offering them a huge congratulations on their new journey.”
The bottom line
The moral of the story’s pretty simple: If you’re buying a home while the COVID-19 pandemic rages on, you can expect for tech to play a big role.
“The traditional real estate transaction has long been a highly antiquated process, relying on brick and mortar meetings for every aspect of it—from open houses, to faxing documents to get a mortgage, to then closing on the home with in-person closings, notaries and appraisals,” Pierce says. “None of these elements allow for social distancing, and as a result, as an industry, we’ve been scrambling to adapt to being fully digital.”
Better.com saw a 200% increase in loan demand in March alone, and the lender is currently working to stand up iPhone-verified appraisals, virtual notarizations and full-on e-closings.
“While Coronavirus has had a tremendous impact on every area of our lives, it may just be the forcing factor in the long-awaited digital revolution in the real estate transaction, which has remained stubbornly analog and brick and mortar,” Pierce says.