Q: I’ve been planning to buy my first home and I’ve spent years preparing for this purchase. Now that the coronavirus hit, I’m wondering if I should go through with my plans. Is it a good idea to buy a house during a pandemic? Is this really the best time to buy a house?
A: The coronavirus outbreak that has swept through the world. It wreaked havoc on the national and global economy. Also, it brought up dozens of financial questions. The uncertainty is confusing both the average American and financial experts. No one can say when this pandemic will come to an end, or what kind of lasting impact it will have on the economy. Experts can only look at past economic crises and try to predict what the financial future will look like.
Let’s take a look at the mid-pandemic housing market and explore buying a home during a time of economic instability.
What does the current housing market look like?
The home sales of February 2020 were the strongest they’ve been in the country since 2007, topping 5 million sales. Factors like falling interest rates and a booming economy contributed to the thriving housing market. However, two months later, experts are already seeing a decline in the buying trend.
Lawrence Yun, the chief economist of the National Association of Realtors, says the market has turned sharply. He adds, “The coronavirus has undoubtedly slowed buyer traffic and it is difficult to predict what short-term effects the pandemic will have on future sales.”
This downturn has likely been triggered by widespread job insecurity. Thousands of businesses closed and millions of employees are on leave from work for an unknown period of time.
The decrease in home sales is also likely due to practical reasons. When people are worried about their health it’s difficult for them to think about making a large purchase. Meeting with sellers and real estate agents and looking at properties is also complicated when trying to maintain social distancing.
No one knows when the spread of the coronavirus will ease, but when normal life resumes, the market may see an increase in sales.
Does it make financial sense to buy a house now?
A slowing housing market does not automatically mean it’s a bad time to buy a house. In fact, times of financial uncertainty generally lead to lower mortgage rates and the ease of credit qualifications. Mortgage rates have already reached a record low of 3.13% in the beginning of March, prompting some buyers to rush into new home purchases. The rate has since jumped back up to 3.65%. Though, it is still relatively low and may fall again.
It takes more than just a favorable mortgage rate to make a home purchase a smart decision.
Some market experts believe the coronavirus pandemic will cause an eventual spike in home sales. This is because buyers will want the stability and control that homeownership brings. A fixed-rate mortgage will not be subject to the peaks and valleys of a volatile national interest rate. It can also help the owner feel secure if job loss and unemployment become the norm.
Before you jump into a home purchase at this time, you may want to take a step back and look at your entire financial picture. Consider the following factors:
How stable is your income? If you have any reason to believe you might be facing a layoff, you may want to hold off on your purchase. Your mortgage will need to be paid each month, regardless of your employment status. Some lenders are granting an extension or the ability to skip a payment, but that’s an unlikely option on a brand new mortgage.
How long do you plan on living in this home? If you anticipate living in your new home until you’ve paid off your mortgage, it can be a great time to buy a house at a low interest rate; however, if you plan on selling within the next few years, you may come out at a loss due to a falling housing market and an unstable economy.
Will you have savings left after going through with the purchase? As the economy heads toward a probable recession, this is not the best time to be without a savings cushion.
The coronavirus outbreak has destroyed all kinds of plans, from vacations to weddings, parties and more. That doesn’t mean you need to put your plans of buying a house on hold. If you can comfortably afford the purchase and your income isn’t threatened by the economic instability, the favorable interest rates and looser qualifications can make this a good time to buy a new home.
Are you in the market for a new home? Talk to us about a mortgage! We’re here to help.