There are many questions cropping up during this unprecedented time, but I wanted to address this question from my world—”should I buy a house during coronavirus?”
The short answer—yes, BUT...
...I will explain. First, let’s look back to how the Pittsburgh market was doing before the COVID-19 crisis.
A LOOK AT THE MARKET PRE-CORONA
Important factor #1: Low, I mean LOW, interest rates.
Now, I am a millennial, and I would also be a millionaire if I had a dollar for every time someone in my industry put our generation down for not having a grasp on finances, for being “impatient,” or for thinking that 5% was a high interest rate. The fact of the matter is that 5% is high compared to rates which, before #corona, were hovering at the low end of the 3% range for mortgage borrowers.
I’ll say, too, that millennials are capable of appreciating that 3% (or even 5%) is worth taking advantage of. After all, that’s why so many first time homebuyers were flooding the market, buying homes, and competing in an environment with low inventory.
Important factor #2: Low inventory (as just mentioned above) = Seller’s Market
In February, there were 3,475 active listings in Allegheny county, according to the West-Penn Multi-List. That is about 2.8 months of inventory, based on sales from March 2019 through February 2020. Six months' worth of homes is considered a “balanced” inventory. Our inventory was at less than half that, making it a sellers market.
Important factor #3: Tough Competition Driving Prices Up
The low interest rates brought tons of buyers into the market. It encouraged them to jump while the sun was shining, and increased their buying power, which is most important for a first-time buyer. This, combined with historically low inventory, drove prices up. There were a ton of buyers, all looking at the same, small number of available properties. When a good home hit the market, all those buyers were submitting offers, which naturally drove up sales prices.
FAST FORWARD TO NOW...A LOOK AT THE MARKET TODAY
Here are the stats:
Interest rates remain low! (around 3.375% according to Howard Hanna Mortgage)
There are approximately 2,435* active listings in Allegheny County, according to the West Penn Multi-List
Competition has dropped off. We are about ⅓ the way into April, and only 105* homes have gone “contingent,” (meaning offer accepted). If we extrapolate out, that would mean 315 homes will go contingent in April, about ⅓ of the previous month.
*these are the numbers as of April 10, 2020, when I’m writing this blog post
THE SHIFT FROM SELLER’S MARKET TO BUYER’S MARKET
IF (this is theoretical—we will see what actually happens) those 315 transactions mentioned above all close, and inventory remains around 2,400, then we would have over 7 month’s worth of inventory on the market. This drastic change would shift the environment from a seller’s market to a buyer’s market, which suggests competition has dissipated. This makes sense. Buyers who have been laid off, who were not as motivated to buy, who are limiting contact with people outside of their household, or who are working extended hours dealing with the crisis are no longer focusing on buying a home.
In turn, it would make sense that prices will come down.
Alone, these factors make it an easy decision...less competition, great interest rates, and a buyer’s market...a PERFECT time to start shopping for a house. However, there is more that comes into play.
THERE ARE UNIQUE CHALLENGES RIGHT NOW
A buyer’s market is nothing new, and for many, would be a breath of fresh air. The problem is, it is not a run-of-the-mill buyer’s market. Because of the precautions in place to prevent the spread of COVID-19, there are some new challenges to consider, which are unique to the current climate.
Challenge #1 - You Will Have Less Assistance From Your Agent
For now, real estate agents (in Pennsylvania) have been restricted from working by Governor Wolfe. Currently, agents are not legally permitted to show houses, or meet with clients. That makes actually viewing any of the active listings difficult for a prospective buyer. I have heard that homeowners are coordinating directly with buyers for showings as a way to circumvent the restrictions, but that comes with some complications.
If you are an experienced homeowner, or if you are comfortable with your ability to spot “red flags” and maintenance issues, this may not be a huge obstacle. If, on the other hand, you are a first-time buyer, or otherwise not comfortable with assessing a home on your own, this could pose a problem.
Even experienced homebuyers are at a disadvantage simply because agents see more active listings than anyone else that I can think of. A good real estate agent will preview homes as they come on the market, so we know what, in a given price range and neighborhood, is typical to see. And no, you can’t tell all of this from photos. You just can’t.
Now, if you view a home without your agent, you can still proceed with the sale if you decide it is your soulmate house. We can prepare paperwork remotely, and with today’s technology, there are plenty of tools to allow us to sign contracts electronically, and to video conference with you to answer your questions and review the process.
Challenge #2 - Some Sellers Do Not Want Strangers in Their Home
Maybe you have overcome the challenge of touring solo. You are comfortable touring homes without your agent, and you are ready to take safety precautions like wearing a mask and gloves. You see a listing online that you think is a perfect fit, only to find out the seller is not allowing showings. Perhaps the homeowner is living in the home and is concerned about the possibility of contracting COVID-19 as a result of showings. Maybe they are concerned about their liability in letting you in the home. Maybe they have symptoms, or someone else they know has been sick, and they are being cautious.
This leads to the potential of going in totally “blind,” and buyers are proceeding in this way—putting in an offer, negotiating terms, and signing the contract without ever stepping foot in the home. There are new practices to mitigate some risk, like stipulating that the buyer may view the home after the Stay at Home Order order is lifted, and if it is not what is expected, they can terminate the deal.
However, a buyer would still need to make a financial commitment in this case, though, including the earnest money deposit and the appraisal fee that comes with any mortgage, which could potentially be at risk.
Challenge #3 - There Will Be Delays
I know many people are hoping that the Stay at Home Order will be lifted at the end of April, but school closures have already been extended through the rest of the academic year. Depending on how much longer the Stay at Home Order lasts, delays may be fairly short, but if restrictions stay in place for weeks or (hopefully not) months, timelines will definitely be extended.
Some townships and municipalities have limited services, which can cause a delay in getting the paperwork and certifications needed to close on a home. Additionally, home inspectors and some contractors have been restricted from working, which will influence the purchase of a home.
I always advise my clients to hire a certified home inspector to assess the home they are about to purchase. Typically, the inspection will occur within the first 10-14 days after an offer has been accepted. These days, we do not know when the restrictions preventing home inspections will be lifted. The best scenario would be for the buyer and seller to agree to delay the purchase timeline until the restrictions are lifted. However, if both parties do not agree, or if the agents do not prepare the appropriate paperwork, it is possible a buyer may face a situation where they would have to proceed without an inspection, the deal may be terminated by the seller, or the buyer may have to back out.
A long delay also causes some risk because it means the market could change between the time your offer is accepted and when you close. For instance, if home values drop significantly while you are under contract, you may end up closing at a price significantly higher than the new market. The alternative, though would be that prices jump back up as the market rises, and you end up having made a fantastic deal.
THE BETTER QUESTION: “AM I OKAY WITH RISK?”
As the saying goes, with great risk comes great reward, and some who buy right now will probably find reward. But not without risk. Don’t forget—there are other ways to find a good deal, in any economy. This “Corona Economy” isn’t the only deal maker in real estate.
Some risk-tolerant buyers look for distressed properties. Some will purchase and live in a multi-unit property. Some will drop the home inspection, accepting any unknown physical defects in order to gain leeway on price. Some will purchase a “fixer upper” in a good neighborhood. These buyers are taking risks—calculated risks—in the hopes of reaping great reward in the future. If this sounds like you, then maybe now is the perfect time to buy.
If, on the other hand, you weren’t already planning on taking on some risk to get yourself a good deal, then I’m not sure this is the time or place to start. There IS risk in buying right now, and if you are a conservative buyer, or risk-averse, you may be more comfortable waiting to see what happens. After all, this is still an enormous purchase and investment.
LOOKING AHEAD TO AFTER "STAY AT HOME ORDER" IS LIFTED
Did you read this and think, I’m NOT a risk taker? That’s okay! Most buyers are not. But that doesn’t mean you have to give up. Now is the time to plan.
I see two main possibilities for the future after the quarantine. The first possibility: The real estate market rapidly returns to the way it was. Low inventory, tons of buyers, and hopefully low rates. I think this is the more likely scenario in Pittsburgh. If this is the case, put yourself in the best position possible by getting your ducks in a row right now:
Call, text, or video conference with your agent
Get pre-approved
Have your agent set up your listing alerts
Research neighborhoods and school districts
The second possibility: The real estate market does not bounce back quickly and remains in a buyer’s market. If this is the case, then you will be able to take advantage of all the benefits to buying during the Stay at Home Order, but without the risks that come with buying in a shutdown. You will have an agent by your side, access to contractors and professionals, and you will be able to move through the process as quickly as possible. Plus, you hopefully won’t be at such high risk of contracting a potentially life-threatening virus!
Anyways, this is just my take. You can certainly find tons of articles encouraging you to jump into the market RIGHT NOW, to BUY NOW, and DON’T WORRY, IT’S JUST A VIRUS, but I always try to be honest. This is what I think!
Thanks for reading.
TL;DR
We went from a seller’s market to a buyer’s market FAST, all because of this “corona economy,” and we don’t know how long the effects will last. These changes have some people wondering if now is a good time to buy a house. My opinion—yes, but the better question to ask yourself is, “Am I risk tolerant?” IF you were already prepared to take on some risk with the types of homes you would consider—fixer uppers, distressed properties, etc., then yes, go for it! If you are more risk averse, though, waiting may be the better decision.
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