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What you should know about buying a home during a pandemic

The COVID-19 crisis has had a significant impact on the housing market, but the full effect may not be seen for another 12-18 months. As the economy ground to a halt in March, the housing market took a massive hit. Home sales dropped nearly 18% in April, according to the National Association of Realtors. This drop in sales drove inventory down as people grew reluctant to put their home on the market, further leading to price increases.

However, we are starting to see some positive indicators that the market is rebounding. As states and communities slowly reopen, homebuyers are entering the market again. By the end of May, mortgage applications were up 54% since early April, according to the Mortgage Bankers Association. And even with the dramatic spike in unemployment in March and April, the market is gaining surprising strength.

Buying a home is one of the biggest and most important financial investments you will make, especially in uncertain times. If you are in the market to buy or sell, here are some tips to consider.

Get preapproved

One of the first steps we recommend buyers take is to get preapproved for a mortgage. It’s important to know that loan prequalification is different from preapproval. The former involves only a cursory look at basic financial stats like your credit score, income and outstanding debt, but it is not an official agreement to extend a mortgage your way. The benefit of being prequalified is that it does not take as long to process compared to a preapproval, and it offers buyers a degree of flexibility. As a buyer, know that your lender may need to verify your employment several times through the homebuying process and some lenders may require higher credit scores to qualify for a mortgage.

Find an experienced real estate agent

In a competitive market with low inventory, buyers need as much help as they can get. Be sure the real estate agent you work with knows your city and area well enough to be of service.

Expect technology to play a big role

Be prepared to practice social distancing as you house hunt. Right now, there are not a lot of open houses and touring homes digitally is the new normal. Zillow reported a 408% jump in agents using its 3D home tour feature in March compared to a typical week in February of this year. Buyers and sellers should expect new policies and listing protocols from electronic closings to limiting in-person meetings to protect the health of everyone involved.

Be ready to make an offer

Even as home sales declined nationally overall with stay-at-home orders, the National Association of Realtors reported that the median existing-home price for all housing types in April was $286,800, up 7.4% from April 2019. In major cities, there has been less of a supply and more of a demand for houses in the past few weeks.

Anyone buying a home today should not only expect to pay more than usual but to be forced into a decision quickly. While everyone wants to get a bargain in any transaction, the nature of a seller’s market implies that homeowners do not even need to bother with low offers. If you find the absolute perfect home, be prepared to make an offer that’s over budget. Right now, with forbearance requests surging and possibly more foreclosures in the coming months, you might need to be prepared to put more money down as well.

Sweeten the deal to survive a bidding war

When two or more parties are competing for a seller’s approval, the result is usually a bidding war. It’s not as frightening as it sounds, but it can certainly be stressful without a skilled agent and some personal experience on your part.

To come out on top in a bidding war, Realtor.com suggests that you have a clean offer, which means few contingencies and compressing the contingency timeline. Cash is king, and sweetening the pot with cash can work wonders, but you might be surprised at the effectiveness of cooperation and flexibility. Buyers who can meet a seller halfway often come out on top, even without the most financial muscle. Having an experienced agent in your corner will help.

Selling could get harder, too

While the market now generally benefits anyone selling a home, there is a lot of uncertainty and a variety of unknowns in the current housing market. In many cities, buyers are still facing stiff competition due to housing shortages, but we don’t know how long this could last.

To alleviate at least some of the stress, buyers should make a list of priorities and stick to them heading into their search. Start the list with features that are absolutely needed, like a number of bedrooms or a two-car garage, followed by things that are nice but not essential. Sellers, meanwhile, should be prepared to juggle multiple offers all at once. This may also require a list of priorities of what to look for from an offer: Would you prefer to make more money on the deal? Or is it more important to sell quickly?

Real estate transactions have never been easy, and they are even more hectic during a global pandemic. However, if you do some preparation beforehand and stay up to date on state and local regulations, you could find that right now is still a great market to buy and sell in.

4 Financial moves to make now

Successfully navigating your personal finances is challenging in the best of times but figuring out how to manage your money during a pandemic can be especially difficult.

While economic conditions continue to shift, it seems that the Federal Reserve, Congress and the White House are going to do whatever it takes to avoid a prolonged recession caused by coronavirus-related lockdowns. Although we have not seen an unemployment rate this high since the Great Depression, the markets have continued to rise. These conflicting indicators are confusing at best, so it is no wonder that money-making decisions might be particularly perplexing now.

Here are some strategies to consider for managing your personal finances going forward.

Get off the sidelines

Get fully invested in stocks in your 401(k), IRA and any other taxable money you will not need for the next 10 years or more. With interest rates expected to be zero for at least the next two years, equities offer a much higher return than bonds.

If you are invested in mutual funds or exchange traded equity funds, sign up for dividend reinvestment. If the markets correct from these levels, at least you will be buying or reinvesting at lower prices – what is known as dollar cost averaging. Had you done this in March, April and even May, you would have reinvested at some very good prices. There are still some bargains in the stock market if you look hard enough. Not all stocks have participated equally in the run up since the March 23 lows.

Make that move

While the Great Recession devastated the housing market, the current economic crisis hasn’t had the same impact on residential real estate, particularly in Colorado. In fact, due to the lack of inventory and no spring selling season this year, the pent-up demand is huge. If you are thinking of selling your home, now is as good time as ever. Record low interest rates make homes even more affordable and new visitors to Colorado may decide to move here and leave expensive cities like San Francisco, Boston or New York City. Rental properties could serve as good investment opportunities too if Colorado remains a desirable place to live.

Ditch high-interest cards

With interest rates at record lows, there is absolutely no reason to be paying high interest rates on credit card debt. You should pay off these charges immediately, even if it means borrowing money from a line of credit or home equity line. There may even be opportunities to swap out of high interest rate credit cards into low interest or no interest rate credit cards. Shop around for the best deal. Trade in your old airline affinity card and opt for a cash back credit card instead so you get money back every time you spend money.

Refinance mortgage debt

As a result of the pandemic, the Federal Reserve has cut interest rates to zero and has stated that it will not raise short-term interest rates until 2022. This extremely accommodative monetary policy has caused the 10-year U.S. Treasury to drop significantly below 1%. Since home mortgage rates trade off the 10-year treasury bond, 30-year mortgage rates are hovering around 3%. If you have a mortgage rate of 4% or higher or an adjustable mortgage rate, you should refinance your current mortgage now and lock in these historically low rates at a fixed interest rate. Mortgage rates may never be lower in our lifetimes. My first mortgage in 1985 was at 13% and when I refinanced at 10%, I thought I had won the lottery. Never could I have imagined mortgage rates below 7%, and here we are at 3%.

 

There are always silver linings in any crisis, and it is important to recognize and appreciate this. Now is a great time to take advantage of the recent correction in the stock market and subsequent plunge in interest rates. I suspect if you capitalize on these opportunities now, you will look back on this period of time and be very thankful you paid attention to what was going on when everyone else was too scared to think about anything else but the coronavirus.