Unprecedented real estate boom puts pressure on buyers
Past real estate booms have pushed up house prices in parts of the country, like California and New York, while bypassing much of the rest of the country. But the current housing frenzy triggered by coronaviruses is raising house values everywhere.
Brian Smith, regional manager and mortgage advisor at Union Home Mortgage in Ohio, says bidding wars and rising prices are also common there.
“This is unlike anything anyone has ever seen or experienced before,” he says.
Smith spoke to Bankrate.com about how buyers can cope with this steaming mortgage market.
How would you describe the housing market?
Smith: Fast and furious. It is unlike anything I have never seen before. We’re at a record high, record stocks. Real estate is an unusual industry. Inventory is based on the fact that a person wakes up one day and says, “I want to sell my house.” For a buyer to be successful in this environment, they must make decisions quickly. A customer will get pre-approved for a certain amount and then they might not find anything available in that price range.
I work in Cleveland, Toledo, and Columbus. All of these markets are on fire. They are just hot, hot, hot. In Sandusky, there is a house priced at $ 250,000 to $ 350,000 – one. One list. In a regular market, when a real estate agent submits an offer, you will have a contingency for an inspection or an appraisal, perhaps a pest inspection. Perhaps the bidder will ask for money to pay for closing costs. Now the conversation is about what we can take away from the offer to take our offer to the top? I don’t like it at all from a buyer’s point of view – buyer protection goes out the window.
What advice do you give buyers for navigating this intense seller’s market?
Smith: Be clear about your goals. The first thing a buyer should do is clearly define their goals. The very first goal to determine is how much money they want to invest in this purchase and how much they want to receive for their monthly payment. Next, we need to talk about the maximum you’re willing to go if you find yourself in a competitive situation, where emotions run high.
Defining this maximum is one of the keys. When you’re in the thick of it, logic is thrown out the window. You don’t want a five-minute emotional decision to put you in a 30-year mortgage you can’t afford. So you need to know your numbers. Before you start bidding, imagine yourself being one of 15 bidders competing for a property.
What mistakes do you see buyers making?
Smith: The buyer who doesn’t have the right real estate agent in this market is making a mistake. You want someone who knows this market, who knows the history of this market. You should hire someone who does more than 20 transactions per year and has 10 years of experience in the business.
And make sure you get pre-approved. There are loan officers who will talk to a consumer, maybe manage their credit, but not check their income or their assets. There is a big divide between good quality mortgage lenders who give full loan approvals based on verified income, assets and down payment – this client is quite ready to borrow money. When we give pre-approval, we base it on what the consumer wants, but we also give maximum. If you were to come to me and say, “I want a monthly payment of $ 2,000”, I would say, “Okay, including taxes and insurance, that entitles you to a house of $ 300,000.” But then I would say, “Depending on your income, you may be entitled to more than that.” So maybe you would say you don’t want to pay more than $ 2,500 a month, and I would approve of that to the max.
How long will this intense market of sellers last?
Smith: Will the population stop growing? Will interest rates stay low forever? Will the economy and the markets continue to be strong? When will the next recession take place? These are the keys to how long it will last. Right now, for the foreseeable future, you’re looking at all of these issues and concluding that we may be in this market for a while.
Where do you see the rates going?
Smith: The market is heading towards 3.5 percent to 4 percent this year. After 2021, I wonder about the stimulus money. When the ripple effects are out of the economy, then what?
Is the refi boom over?
Smith: Not at all. We still do tons of refinancing. Some people make quick refinancing decisions. Some people need to hear the refinance message once and they take action. Some people need to hear the message 10 or 20 times and then they take action. And some people wait until the opportunity is almost gone. For whatever reason, there are a lot of people who haven’t refinanced. Sometimes they are too busy.