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After the last economic recession sent home prices plummeting, Millennial homebuyers are wondering if this recession will be their opportunity to finally buy a home. That interest is only bolstered by the fact that interest rates are at an all-time low, and many young professionals have been able to keep their jobs through the pandemic, albeit remotely.
However, while there are advantages to buying right now, buyers shouldn’t expect rock-bottom prices just because we’re in a recession. If you’re thinking of buying a home right now, here’s what you need to know.
The housing market is still competitive
The coronavirus-induced recession has scared many buyers from the market, especially out-of-state buyers who can no longer travel safely. Unfortunately, sellers have pulled back, too. With fewer buyers and sellers on the market, prices have remained competitive. In fact, while home sales are down, prices are up compared to the same time last year.
Buyers can still find an edge in today’s market. While there may be less wiggle room on pricing, fewer buyers on the market means more ability to negotiate repairs and contingencies into the purchase offer.
Interest rates are low, but lending criteria are high
Mortgage rates continue hitting record lows, but not everyone gets to take advantage of today’s low rates. Lending standards tighten when interest rates drop, making it harder for borrowers with lower credit scores to take out new mortgages or refinance existing loans.
Are buyers who don’t qualify for conventional mortgages out of luck? Not quite. As long as it’s an owner-occupied property, buyers can apply for FHA home loans to purchase or refinance a home. While FHA loans come with additional mortgage insurance premiums, they’re still a good deal for qualified buyers. Buyers simply need to factor these additional costs when calculating how much home they can afford.
Finding a turnkey home is harder
There’s another cost recession home buyers need to include in their calculations: repairs and renovations. That’s because with new construction on the decline and would-be sellers waiting to list their homes until the market rebounds, it’s harder to find a turnkey home during the recession.
While fixer-uppers sell for less, finding the money to renovate is a challenge. On average, first-time buyers spend nearly $34,000 renovating a fixer-upper. Luckily, this is just below the cap for the FHA Limited 203(k) home loan program, which allows buyers to roll renovation costs into their mortgage. Homes that require structural repairs or repairs over $35,000 can be financed with a standard FHA 203(k) loan or Fannie Mae HomeStyle loan.
If you can afford to buy, it’s still a good idea
Despite these challenges, the recession is still a good time to purchase a home for buyers who are in a position to do so. Mortgage rates this low may not be seen again for some time, if ever, and home prices are only expected to rise.
Buying isn’t a smart decision for everyone, however. During a recession, it’s more important than ever that buyers have secure employment and cash reserves to weather the economic uncertainty ahead. Renting is still a better choice for people whose financial situation is unstable or who or plan on moving within the next few years. In some high-priced markets, renting may be cheaper than buying.
For buyers who do decide to buy right now, working with a real estate team will be critical to navigating the complexities of buying during COVID-19. From the best practices for touring homes safely to protecting buyers from coronavirus-related hiccups, it takes knowledge and experience to execute a successful real estate transaction during a pandemic. Instead of venturing into the great unknown solo, buyers should link up with a real estate professional who will put their well-being — both personal and financial — first.
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