It's a fascinating time in real estate. If you had asked a chief economist 4 months ago 'What could negatively affect real estate and ultimate cause a "crash"?' they would have told you, not much. Buyers over the past few years have been strong with large down payments, many buying in all cash, with professional careers and great credit scores. To top it all off, we continue to have fewer homes by at least 25% than we need to meet demand causing home values to continue to appreciate. The only outliers and potential issues included growing student debt and auto payments. The economy was strong, consumer spending was high, in fact, travel was the top spending category proving that people in general had the money to spend beyond necessary expenses.
Then COVID happened....
Flash forward 4 months and real estate came to its knees...or did it? It came to a halt mostly because we were all ordered to "stay home". Of course, we did have an economic backlash with the stock market taking a major hit. This caused many who were using that as a down payment source to rethink their home purchase. Buyers that were in escrow would either proceed with their purchase or cancel due to financial hardship. Others decided to put their search on hold and many homes on the market sat in wait or were placed on hold until further notice.
Rent and mortgage defaults rose with banks and lenders having to juggle how to take the hit. This caused many small lenders to spike rates, however, the larger institutions have been able to weather the storm and have been proving their ability to perform under pressure, maintaining low rates and fewer restrictions and fees. Surprised? I was, but it makes sense.
Buyers have since started to see a green light at the end of the tunnel with low interest rates and the possibility of capturing a home that has been on the market awhile. This is causing a demand spike. Recovery has begun! The homes that are on the market are starting to sell again. Demand is returning in droves (especially under $1M in OC) and the homes entering the market are still down by 35% from last year. Real estate is projected to continue to do well as long as interest rates remain low and inventory is lower than demand. We are so short on inventory that it would be 2-3 years before it is possible for the market to adjust and become a full on buyer's market at that price point.
So what should a buyer know before going into this COVID-19 Housing Market?
1. You're probably not going to get a "deal".
If you are waiting on a deal under the $1M price point, it's not likely to happen. Homes are selling on average at 100% list price. That's not to say that buying isn't a good decision. It just means that you are going to pay fair market value.
2. Yours will not be the only offer.
I am seeing multiple offer situations creep up again. It's like a flashback to 2017. If you want the home and it is priced right you should make sure your offer is well-organized, thorough and as strong as possible or it will not be accepted. Working with an agent who knows how to navigate this situation will help you tremendously. Don't feel discouraged though if it takes a few offers before your offer is accepted.
3. Pre-Qual or Pre-Approval - Which is better?
A pre-qualification is the first step in the mortgage process. At this point, it is a bare-minimum necessity and should be your first step as a buyer. Many sellers are requiring the pre-qualification letter just to gain entry to a property, especially when it is occupied. The lender will likely run your credit and gather a few basic numbers to give you a ballpark estimate of how big of a loan you could qualify for. This is purely based on the information you provide. They will then provide you with a letter that your agent will send in with your offer.
On the other hand, a pre-approval is much stronger. A pre-approval will require documentation and review by an underwriter. At that time the lender will perform an extensive check on your financial background and current credit rating. Sometimes you can even lock in a loan rate. The pre-approval is seen as the strongest form of verification and is the next best option to an all-cash offer.
4. Staying Safe While Viewing Properties
Viewing properties has changed quite a bit with COVID. No more Grand Open Houses! With "stay at home" orders still in effect in California, virtual showings have become a necessity. The good news is L3 has always provided virtual showings. Many agents are requesting that buyers view the property virtually prior to arranging an in person showing. A signed disclosure and a pre-qualification letter are usually required prior to viewing the property as well. When you physically go to the property your agent will provide hand sanitizer, wipes, gloves, face masks and in some cases booties so that contact is minimal. Properties are being sanitized between showings as well. We are doing everything in our power to ensure your safety.
So whether you have been actively looking for sometime or have just been bouncing around the idea of purchasing a home, feel free to reach out. This is not the time to go it on your own. I can help you pave your path to home ownership and remove a few bumps along the way.
Happy trails!