by Aly J. Yale
April 27, 2020
by Aly J. Yale
April 27, 2020
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.
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.”
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.
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 have announced sweeping changes to their loan requirements. Some now require a 700 credit score and 20% down for any new home loan. 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.”
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.
Some lenders are also asking that borrowers have more in cash reserves—yet another way to lessen the risk. Online mortgage lender 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.”
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.”
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.
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 home buying process and we want to share in their excitement by offering them a huge congratulations on their new journey.”
Are you looking to buy a house? Before you start going on showings, contact the loan officers at Wintrust Mortgage to discuss your options.