Whether you have been steadfastly saving to become a first-time homeowner or looking buy a new home in 2020, the state of the market may have you wondering if now is the best time for your big purchase.
There is a lot to take inventory of, including the housing market, global competition and your own personal and financial circumstances. From history-setting lows on mortgages rates to the current travel ban keeping foreign investors at bay, here’s a look at why now is a good time to invest in a home.
Mortgages rates bottomed out in early March, hitting a record 3.29 percent — an all-time low since 1971 when Freddie Mac began its Primary Mortgage Market Survey. Just a week before in February, rates were at 3.45 percent, and in March 2019, the 30-year fixed-rate mortgage averaged 4.41 percent.
This is a big deal for aspiring homeowners who have been priced out of the housing market. These record lows could ultimately save them tens of thousands of dollars in interest over the lifetime of their mortgage loans.
One calculation suggests that if homeowners secured a 30-year fixed-rate loan on a $300,000 home at 3.29 percent with 20 percent down, they’d save about $159 a month compared to the rate on offer one year ago. Over the course of a decades-long mortgage, that’s more than $57,000 in savings.
It’s no wonder lenders have been swamped with applications for new mortgage loans and refinancing alike. The Mortgage Bankers Association reported March 11 that mortgage applications had skyrocketed by 55.4 percent from the previous week. Refinances made up the bulk of the applications, at 76.5 percent, up from 66.2 percent in the prior week. And as of February, mortgage applications for new homes had increased by 25.9 percent compared to a year prior.
You Won’t Have to Compete With Foreign Investors
Real estate analysts are also suggesting the travel ban the U.S. government issued in early February is advantageous to American homebuyers who are house hunting. The U.S. State Department turned away non-U.S. citizens who had been to China and gradually canceled flight routes between the United States and China. By mid-March, the government sent shockwaves around the world as it extended the travel ban to include Europe.
The result? Less competition with wealthy investors on an already limited inventory of houses, especially in regions that are popular among foreign buyers, such as Florida, California, New York, and bustling college towns.
“Foreign buyers want to see the property in person before throwing their money at it,” Lawrence Yun, chief economist for the National Association of Realtors, told MarketWatch. Right now, this isn’t an option for them.
International homebuyers pour billions into the U.S. housing industry, with the Chinese leading the way year-over-year. They acquire U.S. properties as a means to diversify their investments, reap the benefits of steadily increasing home prices, and protect their money in a stable market.
The NAR estimates that Chinese homebuyers spent $13.4 billion on residential property from April 2018 to March 2019. The travel ban could make a marked difference on the housing market, with American homebuyers potentially seeing affordable prices, and less likelihood of a bidding war on top of the low interest rates.
The U.S. dollar has been strong stacked next to other currencies, too, such as the British pound, the Chinese yuan, and the Canadian dollar. In recent months, the yuan particularly took a nosedive next to the U.S. dollar, suddenly making U.S. homes more costly.
There are other forces at play also driving Chinese investors away in the interim. In 2016, the Chinese government ushered in new restrictions on overseas investments worth more than $50,000 to encourage domestic investment, and it became harder for Chinese investors to buy U.S. properties. 2019’s U.S.-China trade war also contributed to scaring Chinese investors away.
Foreign investors are still looking though: Roofstock, a California-based company that lists family rental homes for sale, noticed a 500 percent increase in website traffic from visitors in Asia this month. It also noted a 450 percent jump in visitors from Germany, a 250 percent climb in traffic from Australia and a 100 percent increase from the United Kingdom.
With the aid of technology, buying a house sight unseen has become a routine process. Foreign investors, as well as Americans who want to buy from another state or simply shop online, can still visit homes via FaceTime, virtual tours, or through detailed video walkthroughs.
You’d Have a Safe Place to Park Your Savings in the Long Run
Going into March, the U.S. housing market was setting up to be incredibly competitive as we faced another year of housing shortages. Inventory has been increasingly low over the past few years, and demand was at an all-time high. This combination could have led to inflated prices on the limited supply of homes in the spring, as winter ended and families started house hunting and moving.
But due to the current financial uncertainty, segments of buyers will likely hold back, easing up demand. As a result, prices should flatline. If sellers worry about lack of appetite, prices could drop a bit too.
This all bodes well for homebuyers, especially for first-time buyers as they have a blank slate and don’t have to worry about selling a current home in an uncertain time.
Homebuyers with job security during this tumultuous time are in the best position because they aren’t shifting into a wait-and-see stance due to potential layoffs or a cut in salary as the country figures out the new normal for many industries.
And if we can learn from the past, the number of home sales will drop, but the value of homes should stay the same. Early indications suggest that home prices haven’t tapered off at all.
In anecdotes from the 2008 financial crisis, those who bought homes and stayed in them for the long run ended up making money on their initial buy as house prices across the country rose in the ensuing decade. Economic downturns don’t lead to home prices deflating; they tend to cause a bump in home values until the economy is stable again.
Across the board, the advice to homeowners during a crisis or not, is to invest in a home with high resale potential. Make your purchase count: Choosing to buy a home in a city that’s in demand or in a neighborhood with great transport links could make all the difference in your home’s resale value. Consider as well how old the home is, its size and usable space, and its customizations and updates so they’re universally appealing.
Your Personal Circumstances Mean it’s Time for a Move
With a tug-of-war going on between record low interest rates and an uncertain economy, the decision to buy a home includes how your personal circumstances apply to what the world is currently tackling.
Some potential homebuyers don’t have a choice but to refrain from buying. Their jobs could be on the line, or their stocks, bonds, or other assets could be falling in value. On the other hand, you could be working in an industry shielded from potential job losses, and rock-bottom interest rates are the icing on the cake if you were planning to buy a home this year anyway.
And for some, buying a new home right now might be necessary. They could be expecting a new family member, or they have to move for a new job or to look after loved ones.
As for other considerations, think about how long you plan on staying in a new home. If you’re in it for the long haul, say, the duration of the loan or at least the next 10 years, that is enough time to weather the current storm and come out with a home that’s appreciated in value. If you’re buying a home that you don’t intend to stay in for long, or you’re unsure of your long-term plans, it’s hard to say what — if any — gains you’ll make on your purchase when it’s time to sell.
Evaluate how covering your down payment and closing costs will affect your day-to-day budget as well. If we are heading into a recession, check that you have some liquid cash on hand after covering your initial mortgage-related expenses. In addition, as of March 18, the federal government, through Freddie Mac and Fannie Mae, began offering mortgage relief options for homeowners with mortgages backed by those institutions. Contact your lender or loan service to see if you qualify.
In any case, don’t panic. Keep in mind, like you and your family, Americans will always need housing. Some peace of mind for homebuyers and homeowners alike is that even in uncertain times there is a demand for homes and the housing market remains durable and resilient.
Carmen Chai is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. For NewHomeSource, Carmen covers a variety of topics, including insurance, mortgages, and more.