For good reason, many people have been holding off on making major purchases or financial commitments since COVID-19 struck. The coronavirus pandemic has created massive unemployment, a crushing recession, and lots of uncertainty in almost every aspect of our lives. Many of us are living in a sort of “wait and see” mode. We waited to see what would happen if we flattened the curve. We waited to see what would happen when we opened the economy and started taking tentative steps back to normal. We’re certainly waiting to see how a vaccine or treatment for the virus might look. Yet, despite all of this waiting and seeing, the world is still spinning, and life is carrying on. Families are still growing. Students are still graduating and starting new journeys. Professionals are still taking new jobs and relocating to new areas. As these life events pile up, you might find yourself in a position where you want to buy a house. Is now a good time to dive into the housing market? Or would it be wiser to wait to buy until after COVID-19 is no longer a looming concern? In this post, we’ll take a look at what buying property looks like during a pandemic and a recession, and at what things you might consider before making a decision.
Mortgage Rates and the Housing Market
The coronavirus pandemic has affected the market for prospective property buyers in several ways. Even before COVID-19 hit the United States, though, the housing market was already in a historic place. In February, the inventory of homes for sale in the United States fell to its lowest point since “at least 2012.” The pandemic has only rendered the state of the housing market more unusual, with mortgage rates repeatedly hitting new record lows. On July 2, for instance, the 30-year fixed rate dipped to 3.07 percent—down from 3.13 percent just a week before and down from 3.75 percent at this time last year.
The combination of low interest rates and low housing supply has created a curious situation in the housing market. Where virtually everything else in our society has hit pause, demand for housing has remained relatively high. For those selling homes, the current situation is a best-case scenario, given the tumultuous year 2020 has turned out to be. Sellers have been able to sell their properties quickly at asking price or above—and have then flowed straight into a buying process characterized by bargain mortgage rates.
It’s been a tougher time to be a buyer, simply because housing inventory has remained low while demand has skyrocketed. Would-be buyers have flocked to the market, drawn by low interest rates, only to find that the market is exceptionally competitive at the moment.
That’s not to say that right now the wrong time to buy. On the contrary, with mortgage rates low and still dropping, it’s worth considering a property purchase even if the buying process might be a bit competitive and stressful. Prices may not have dropped much on homes themselves, but low mortgage rates mean spending less on the house over time—still a big win for new buyers. Furthermore, demand is going to vary from one geographic location to the next, which means that some buyers may be able to find price-dropped homes and score a historically low-rate mortgage.
There is also evidence that demand may be dipping. CNBC reported at the beginning of July that mortgage applications to purchase a home had declined for the second week in a row. One theory is that there was pent-up demand in the marketplace from COVID-19 lockdowns. During this time, real estate agents were widely not considered “essential” workers and were therefore unable to show homes—which in turn caused a massive surge in buyer interest when stay-at-home orders lifted. This slowdown could create a sweet spot of sorts for buyers who are just starting to shop for a home, as they will enjoy low interest rates as well as a slightly less competitive playing field.
Not Just about Buying; Why Now Is the Perfect Time to Refinance
COVID-19 has certainly created a money-saving opportunity for anyone looking to buy a house this summer. However, there are, of course, less-than-ideal factors to buying right now as well. For instance, with unemployment levels high—and with chatter about a second wave of coronavirus and a second lockdown to go with it—much is still uncertain and unstable at this time. Some prospective buyers may well decide that now is simply not the right time to make a property purchase—even if they’d had plans to do so before the pandemic hit.
If you are a current homeowner and are interested in saving money on your monthly mortgage payment, though, then now is absolutely the perfect time to talk to your banker about refinancing. For instance, say you bought a house in 2017, at that year’s annual average of 3.99 percent for a 30-year fixed mortgage. If you were to refinance now, at 3.07 percent, you could likely save a significant amount of money per month. Refinancing your mortgage does mean you will have to pay closing costs again, but by getting a markedly lower interest rate on your loan, that process could pay for itself in a matter of a few short years.
Ultimately, you’ll need to talk with your banker to learn how much you stand to save each month by refinancing. You’ll also want to consider your future and how long you plan to stay in your house. If you’re in your forever home or have no plans to move anytime soon, then the ROI of a refinance right now could prove to be quite high. If you think you might move in another year or two, then the ROI of refinancing probably won’t justify the costs.