The Pandemic: How It Is Affecting Homebuying
What makes a pandemic such a hot time to buy?
It seems homes are selling faster than ever, which may be shocking in the face of a pandemic which has crippled our economy and limited our public interactions. However, the intimate process of buying and selling a home remains robust in the face of uncertainty. Interest rates remain incredibly low, buyer confidence seems to be more nuanced, and the types of homes being swept off the market the quickest seems to be changing. So what makes a pandemic such a hot time to buy? Let’s take a closer look…
What is causing so much faith in the market?
The simple answer is a robust securities market, a competitive supply/demand exchange, and the rapidly changing needs of the buyer; in addition to the fact that real estate remains a great reliable hard asset. Hard math combines with the human factor to create a housing market which thrives even in the face of a global outbreak.
How can I use the securities market to my advantage as a buyer?
Here is how the buyer can use this to their advantage: Buyers can keep a close eye on the securities market for fluctuating purchasing patterns. During Covid, the key institution to watch is the Federal Government. Because of the Covid lockdown, the Federal Government has stated that no renter or buyer can be evicted from their homes because they cannot pay for their stay, a resolution called “forbearance”. To counter this inevitable drop in loan payments, the Federal Government is going out of its way to purchase as many securities as it can. So long as this pattern continues, buyers remain in the sweet spot for locking in a low interest rate.
Home buyers invest in what is called the “primary market.” They go to the bank and get a loan to buy their home. With the borrowed money, buyers obtain a title lien which is held in trust to the benefit of the lenders (the bank). The loan agreement plus the lien agreement become an asset the bank can sell. The bank sells these bundled agreements, “securities,” in the “secondary markets” such as the Federal National Mortgage Association or the Federal Government (specifically the US Treasury). Why would the banks sell these loans? To create free cashflow for more loans to be made. Simply put: they sell the promissory note to a higher market for the cash right away. As long a securities can be sold, there is more money to be loaned and interest rates stay low.
Has Covid affected buyer or seller priorities in a lasting way?
While from a banking standpoint, it is a buyers’ market, from the real state point of view, it’s a sellers’ market. There is a factor the sellers must take into account and it is directly affected by Covid: uncertainty.
Uncertainty is a natural factor that arises from a number of causes: election years, and the job market to name two, but Covid has introduced a new cause for uncertainty. People fear the consequences of allowing strangers to pass through their home, potentially spreading the disease. For many potential sellers this means taking advantage of the securities market to refinance their mortgage or make home improvements unless they absolutely have to put their house on the market. Uncertainty limits the supply of homes on the market, and the low interest rates of home loans encourages more buyers to submit higher offers. This makes the market incredibly competitive for homebuyers and often a seller will sell their house for top dollar very soon after they list… currently the national average is 22 days on the market before going under contract!
For the buyer, the securities market is encouraging them to buy bigger but Covid is also a driving force behind that decision. Covid has driven adults and children alike to stay inside. Buyers are anticipating being at home for the long haul and it is affecting their home buying wish list. Rumpus rooms are more essential than ever and they are being rebranded as “home offices” and “virtual classrooms.” This need for space to separate home life from work life is driving buyers to buy bigger and quicker.
Will the market continue to flourish? Absolutely. If you are a considering selling, now is the time to take advantage of this economic climate and put your house on the market. Low interest rates are encouraging buyers and sellers alike to participate in the securities market by taking out loans. Provided secondary markets continue to buy securities, the interest rates will remain low, driving home prices up. If you are a buyer, the market is competitive, but the likelihood of getting more home for your buck is high. With demand remaining high, an insufficient housing supply will continue to ensure rising home prices.