This post is targeted to those residing in the United States.
If you have been wanting to buy a house, you are most likely asking what effect is the COVID-19 pandemic having on the real estate market? What about home values? What about interest rates? What about the process of securing a mortgage?
The first thing you need to know is that just about everything is different from what it was prior to the COVID-19 pandemic. The major changes are:
- Interest rates are highly volatile and change frequently
- Home selling prices are higher (sellers’ market due to low inventory)
- The process of buying a home is taking longer
Forty plus percent of Americans are working from home. Rising home prices suggest that many who are working from home want a larger home to accommodate the new realities of working at home.
Keep in mind that the soaring market prices may be the result of misinformation, wrong assumptions and opportunism that aren’t based on actual market realities.
Concerning your personal interest, you don’t know for sure if working at home is for an extended period of time or permanent. With many businesses struggling to survive the pandemic, you don’t know for sure that you (and your position) will not be targeted for elimination.
You may come to regret buying when the inventory of houses on the market is low and selling prices are high. LendEDU, a financial information website, surveyed 1,000 mortgage holders in August of buyers who bought their home after March 2020. Many of them regretted their decision to take on a mortgage. This isn’t hard to understand having witnessed the financial devastation to many families and businesses.
Buying a house in a sellers’ market is not a smart financial decision. Many sellers are taking a once-in-a-lifetime opportunity to sell their home at an inflated price.
The Renting Advantage During This Uncertain Time
For many people, calling the landlord for repairs is a huge advantage. As a homeowner, you need to budget 2-4% of the home’s value for repairs and home maintenance. Additionally, you have to find a reputable company to do the repairs.
Many homeowners also get tired of having to mow the grass, trim the bushes and clean the gutters. They prefer to relax and socialize instead of being trapped at home doing chores.
Another advantage to renting during this time of economic uncertainty is that you don’t have to come up with a sizeable down payment. You may need a portion of this money for future financial needs if you lose your job due to the coronavirus pandemic.
If you do lose your job, it is a lot easier and simpler to move for a new job if you are a renter instead of owning a home that you have to sell.
If You Decide to Buy
If you are secure in your job and have 3-6 months of living expenses in an emergency fund beyond the money you have set aside for the down payment on a new home, then buying may be to your advantage if you’re able to purchase the house at a favorable price.
Be sure to start the process early. Start working with your lender long before you make an offer to purchase a home. The process takes longer than usual and you could end up losing the home of your dreams if you don’t get a jump start in the process.
My advice, however, is to wait on buying a home until the economy and the COVID-19 pandemic stabilize. There are too many unknowns and too many risks right now and all of these unknowns and risks are beyond your ability to control.