Is This The Right Time To Buy Home As A First-Time Buyer?
October 3, 2020
As a first time home buyer, you must be overwhelmed with all the procedures, tasks, checklists, and requirements that you need to satisfy. Add to that the uncertainty of the market conditions this year, you might be quite confused with making any critical investment decisions.
Stock markets are volatile and risky, and your savings account can’t earn the returns you would like. But housing has always been a reliable investment option over the years except for a few duration of recessive periods. So does that mean it is safe to buy a home right now, especially as a first time home buyer?
In this article, we will talk about the prevailing market conditions and contributing factors that will help you make the right decision. You need to weigh in your priorities and take proper considerations to reach a decision.
Market Conditions And Factors
Supply-Demand Dynamics
The current market is experiencing unprecedented uncertainty in terms of supply and demand. Both sellers and buyers are apprehensive of making a move, bringing the real estate business to a standstill. While we should be able to gather better statistical data with regards to the market in a few months, as of now, initial data suggest a low number of supply in the housing market. Compared to this time of the year before, it is a sharp decline since the great recession in 2008.
Just before the coronavirus hit the US, the market was considered a seller’s market. The same condition could prolong for a while as the number of listings has gone down.
You need to understand that right now; prices might not be as low as you expect them to be and there wouldn’t be many choices given the low supply.
Rise In Unemployment
The effects of the rapid rise in unemployment have a snowballing impact on the real estate market. Stable income is what motivates many people to undertake mortgages and have the confidence to buy a home.
With a lot of uncertainty regarding employment status, it is expected that people would like to hold on to their cash reserves to handle possible adversities. It does make sense. Putting up your savings as a down payment to a house is a costly investment. And you also need to have a stable income to make the mortgage payments, which if not done on time, you risk losing your house and the investment.
Loss of jobs will also affect the rental income. Tenants will struggle to make payments, and this will affect the ability of landlords to make the mortgage payments on time.
But there is little hope. Government programs have been created to address the unemployment issue. These programs help citizens get cash assistance to an extent and can prevent mortgaged houses from going into foreclosures.
Lack Of Foreclosures
Foreclosures used to be the best option to score a winning deal. But with many courthouses and lenders operating at a slow pace, foreclosures are becoming a rarity making it difficult for new home buyers to get attractive contracts. People who prefer online auctions over in-person interaction will find it challenging to find a house to their liking.
Lack Of Rental Incomes
The lack of rental incomes could, in the best future, contribute to a rise in the listings. As many landlords who have lost a considerable amount of income via rentals would want to liquidify their assets to pay off loans or tend to emergency expenses. There has been a significant loss for Airbnb and VRBO dependant landowners as traveling has been restricted. Unlike bigger corporates that can bite down on their cash reserves, these small-time landlords will want to sell their properties. Offering an attractive price can quickly get you such properties.
Long Term Holding Vs. Flipping
Properties
As a first time home buyer, it is highly recommended that you buy a house for long term use. Flipping a house for investment purposes could be very difficult, considering the current market conditions.
Flipping requires that you buy at low prices and sell at high prices within a short amount of time to be able to make a profit. While home prices will indeed continue to rise, buying a house to flip can be costly right now considering maintenance costs and a slow market in the near future. It could take a year or two for the market to bounce back.
Mortgage Market
The mortgage market is truly experiencing an upheaval with several requests for refinancing and a dire need to reevaluate risks for every applicant. Right now, the market is favorable for investor preference. This has been the result of lenders trying to conform to the Federal National Mortgage Association and Federal Home loan mortgage funding criteria.
Interest Rates
Since March this year, the interest rates are hitting an all-time low, making it a really preferable time to buy a house. The average 30 years fixed-rate mortgage was around 3.29%, and the 15-year term rate dropped to 2.79%.
The federal funds’ benchmark rate has also been reduced by the Federal Reserve. All the above have led to an overwhelming increase in refinancing and new mortgage applications. While low-interest rates present a favorable situation to buy a new home, you cannot entirely base your decision on that alone. Interest rates are volatile and could rise back at any time.
Down Payment Funds Availability
Most people tend to put their prospective down payment funds into a savings account. But there is a considerable chunk of the population who have invested the funds in brokerages and into the stock market. This could prevent them from taking advantage of the current low prices as their down payments are locked and would not be available for a while. And the general fear of losing emergency funds saved in savings accounts can also make buyers think twice before using it as a down payment for a house.
If you, as a first-time buyer, cannot be sure of your income next year, you might find yourself in the same dilemma as well.
Slow Process Times
With the pandemic shutting down a large part of several industries, including logistics and legal offices, the entire selling and buying process could be delayed. While virtual housing tours and online deal closures are offering an alternative means by social distancing norms, they are not as efficient as the traditional methods yet.
Appraisers must still visit homes, and inspections need to be done correctly. Lenders also need extra time to process mortgage applications. Until the gaps between the new technology and existing methods are closed, deals could take longer to complete. This may provide ways for sellers to include COVID specific clauses and increase prices before the deal closure, which in turn might lead to more complications for the buyer.
What Should You Look For As A First Time Home Buyer?
- Seek help from state programs, tax breaks, federal loans, and such. Look into the advantages you have as a first-time buyer. Understand and make use of any eligible government initiatives like the Cares Act to help you deal with any cash crunches.
- Evaluate and assess your financial health and available finance options ( mortgage qualification, savings, taxes involved, affordability, repayment plans)
- Gather information required to find the right property, making lucrative offers, conducting home inspections, and closing the deal.
- Take consideration of property taxes, maintenance, and upkeep costs and see if you can afford the house you want to buy.
Tips To Help Decide Whether To Buy A
House Now
Estimate Your Expenses And See If It
Is Affordable
The safest bet you can take now is to buy a home that can build value over the years. Decide how long you intend to stay on the property. Unless you choose to stay long term, you have to choose properties that have reasonable appreciation rates.
Pay attention to the location, neighborhood, land value, upcoming developments to assess whether the property can accumulate value over the years. Experts say that you should buy your first home to live in it for at least five years.
Choose A Property That Satisfies
Your Needs.
If you really must buy a house, it must satisfy your immediate and long term needs. Choose a neighborhood where you would feel comfortable living.
The maintenance and upkeep costs should also be within your means. Unless you have an excellent deal, don’t settle for a home that you don’t entirely like.
Choose The Right Neighborhood.
One cannot stress the importance of choosing an excellent neighborhood to make your housing investment. Look at the available civic amenities, community support, road links, and other transport facilities. A good indicator for a neighborhood that boosts property value is a good school district. Properties in a good neighborhood tend to increase in value even in a dull market.
The Wrap Up
As discussed earlier, you need to have a stable income to be able to afford the mortgage payments. It is great if you can finance the entire purchase money without debts. In other cases, you will have to think of the long term consequences and make a decision that will be financially safe.
Try to avoid dipping into emergency funds or cutting down on essential expenses to buy a house. Have a solid plan and backup plans in hand that can give you alternative options to deal with your financing.