According to CBS News, the pandemic-era real estate market has emerged as a windfall for sellers and a headache for buyers. A shortage of for-sale homes continues to boost prices across the nation by double-digits – and is pushing house hunters to go to extremes to win bids.
It’s not uncommon for buyers to make a bid without seeing the home, offering above asking price and wave all contingencies – meaning no inspection or mortgage-financing contingencies.
About 1 in 5 first-time homebuyers had to go above their budgets to buy a home, and more than 1 in 10 waived contingencies, according to a Realtor.com survey earlier this year. Another 1 in 5 spent more than a year on their real-estate hunt, the survey found.
Increasingly, offering above asking price isn’t enough to win a bid in the ultra-tight pandemic housing market, according to realtors and buyers. Indeed, going above the asking price is simply the first step in winning an offer, with buyers increasingly offering additional enticements, including waiving inspections for hidden structural problems and providing free “leasebacks” to sellers, or offers for sellers to remain in the homes between one to six months after closing – free of rental charges.
The pandemic also prompted people to look for new homes, especially properties with home offices and outdoor space given the confinement and work-from-home trends of the last year. And while existing homeowners can get eye-popping premiums for their properties, some are reluctant to sell because they worry about their ability to find a new home given rising prices and widespread lack of inventory, which is adding to the logjam in the supply of available housing.
Memories of the Housing Bubble
The real estate market’s surge in prices and demand is stirring up memories of the housing bubble leading up to 2006. The painful bursting of that boom, which fed into the Great Recession of 2008, is raising questions about whether the market is repeating history. But lending standards are much tighter than they were prior to 2006, with buyers being required to provide tax data, paychecks and other information to confirm they can afford a mortgage, and that decreases the likelihood of a repeat housing crisis, experts said.
Most Important Now
In a hyper-competitive housing market, down payment and credit score are more critical than ever. According to Real Simple, a new LendingTree study finds that in the nation’s most competitive housing markets, buyers have to work harder than ever to set themselves apart.
Here’s a snapshot of the current reality across the nation: The average down payment in the top 11 most competitive metros in the United States is 21%, according to a new LendingTree study. Furthermore, a staggering 73% of buyers in those competitive metros have credit scores of at least 720.
In other words, this isn’t your typical rodeo. If you want to be successful in landing the home of your dreams (or landing a home, period), it’s best to have your finances in tip-top shape.
Most home buyers obtain pre-approval for a mortgage from a lender to finance the bulk of the property purchase. And the sale contract will be contingent on the buyer ultimately securing that mortgage if their offer is accepted by the seller. In the event the prospective buyer does not get approved for that mortgage, however, they can cancel the purchase contract, leaving the home seller in the lurch.
While mortgage rates are at an all-time low, people looking to buy their first home — particularly millennials, who accounted for half of all new home loans in 2019 — have a limited and aging stock of houses to choose from. And for those who still want to build a home from scratch, rising construction costs, limited lot sizes, and excessive red tape can make the process seem insurmountable.
The shortage of single-family housing in the U.S. is a problem that’s not going away anytime soon. The current surge in demand for suburban housing may have been accelerated by the pandemic, but the trend of people moving out of cities to the suburbs is nothing new. Except this time around, our audience is the most digitally savvy group of homebuyers to date.
Mortgage Rate Update
Since the most recent peak in April, mortgage rates have declined nearly a quarter of a percent and have remained under three percent for the past month.
The low mortgage rate environment may not last long, as consumer inflation has accelerated at its fastest pace in more than twelve years and could lead to higher mortgage rates in the summer.
The Freddie Mac weekly survey shows the average rate for a 30-year fixed mortgage is 2.94%, which is 0.02 points lower than last week, and down 0.34 points from this time last year.
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