Should You Buy a Home During the Pandemic?
Consider these pros and cons before purchasing a new house during uncertain times.
There’s no place like home — especially during the COVID-19 pandemic. As people spend more time at home in the wake of the public health crisis, they are also spending more money on their homes. Home improvement spending has surged since the pandemic started. And despite the overall economic contraction, consumers are paying record amounts to buy or rent a home.
Is it a good idea to buy a new house — possibly the biggest purchase you will ever make — during a pandemic? If the extra time at home has you wanting to trade or upgrade your living quarters, following are some pros and cons to consider before buying a home.
Pandemic Homebuying Benefit #1: Record-low interest rates
Somewhat offsetting the rising home costs, falling mortgage rates have increased buying power. In mid-July, Freddie Mac reported that rates fell below 3% for the first time in nearly 50 years.
That means today’s borrowers are spending less on the interest portion of their monthly mortgage payments and shelling out more in the form of principal compared to a year ago.
In some regions, the differences in the two values, compared to a year ago, cancel each other out or even come out in the homebuyer’s favor.
Pandemic Homebuying Downside #1: Soaring home prices
While the pandemic has taken a toll on many parts of the economy, the real estate industry seems to be an exception. Typical U.S. home values rose to $252,178 in June, up 4.3% from a year ago, according to Zillow.
Hot housing markets like the Boise and Salt Lake City metro areas saw even greater gains. Home values in Idaho have risen 9.5% to $298,257 since last year, and prices in Utah have gone up 5.3% to $355,484.
Soaring home values benefit existing homeowners in the form of increased equity, but they put some first-time homebuyers in a precarious spot.
Faced with a decision to enter the housing market now or potentially watch home prices fly farther out of reach, it may be tempting to stretch your budget beyond its limits. However, you need only look back to the housing bubble burst of 2008 for a history lesson in the perils of buying a home you can’t afford.
Pandemic Homebuying Benefit #2: Technology, telecommuting boost buying options
As telecommuting becomes more commonplace, some homebuyers will have flexibility in where they buy a home, giving them more options to choose from despite the lack of supply.
Additionally, social distancing efforts have increased opportunities to home shop remotely. Virtual home tours and online open houses can help you explore many homes quickly — an advantage in a tight market.
And with an online application like Zions Bank’s Zip Mortgage[cite::701::cite] you can apply for preapproval digitally, which can help make your offer more attractive to home sellers.
Pandemic Homebuying Downside #2: Low inventory
Potential buyers have fewer home listings to choose from than they did before the pandemic. Realtor.com reported that the total number of homes available for sale continued to be constrained in June. Nationally, inventory decreased 27.4 percent year-over-year, amounting to 363,000 fewer listings than a year before.
One reason for this may be that sellers continue to be wary about opening their homes up to potential buyers during the pandemic.
Pandemic Homebuying Benefit #3: Assistance programs are available
Many lenders, including Zions Bank, offer special loan options for first-time and low- to moderate-income homebuyers to help with homebuying hurdles. These programs might include closing cost and down payment assistance programs or discounted rates and fees.
Additionally, government-backed mortgage loans available through private lenders — including Veterans Administration (VA) loans, U.S. Department of Agriculture (USDA) loans and Federal Housing Administration (FHA) loans — offer relaxed credit standards and reduced down payment requirements.
Pandemic Homebuying Downside #3: Intense competition
Potential buyers face fierce competition for the short supply of homes that are available. Often that means putting down offers on multiple houses and facing bidding wars.
In July, the Salt Lake City metro area was ranked as the third-most competitive housing market nationally, behind Boston and San Diego. In June, 64% of homes sold had multiple offers. Boise area buyers are similarly experiencing stiff competition.
Weighing the pros and cons of buying a home
In a recent New York Times op-ed, Yale University economist Robert Shiller noted the conundrum for today’s prospective home buyers, who must make life-changing decisions with imperfect knowledge of the future.
“History suggests that it might be wise to avoid investing in too expensive of a house or in taking on too much risk,” he warns. “Yet the value of a good place to live for a family cannot be quantified. If you can afford the cost, a house that you will live in for years to come may be worthwhile, regardless of the short-term shifts in the market.”
If you’re a prospective homebuyer in 2020, give yourself every possible advantage
If you’re seeking to close on a home this year, you’ll benefit from having a mortgage provider with a streamlined application process. Zions Bank’s Zip Mortgage[cite::701::cite] allows clients to complete their application in 10-15 minutes and offers a 24-hour automated underwriting system.
If tight inventory has you looking to build rather than buy, consider a Zions Bank One-Time Close Construction Loan[cite::701::cite]. This loan bundles the lot purchase, construction and permanent loan in one transaction — which means there is only one set of home loan closing costs and loan documents. To learn more, contact a Zions Bank Mortgage loan officer.
Kallee Feuz is a Public Relations officer for Zions Bank.