Over the course of a typical 15- to 30-year mortgage, economic conditions will fluctuate between boom and bust. But the coronavirus pandemic has laid down a fresh and unusual challenge for investors. The pandemic has fundamentally changed where people work, where they want to live and how they see their financial goals. It has also critically impacted many people’s financial health and immediate prospects.
So does that mean you should postpone any plans to buy a house? Not necessarily. In every crisis there is opportunity, and for some, this could be the year to invest in a new home. Here’s what to know before making your move.
How Has the Pandemic Affected the Markets?
We’ve talked about some financial predictions for 2021 that — touch wood — the pandemic has fallen short of causing an economic meltdown. Far from it, in fact. We’re still enjoying record lows in mortgage interest rates and record highs in house prices. Where the pandemic has had a huge impact, however, is in the job market, which has a knock-on effect on housing. On the one hand, millions of Americans have lost their full-time jobs, with one in four now reporting difficulties in paying regular bills; on the other hand, about 40% of Americans are working from home, leading to the phenomenon of “work nesting”. Remote workers are gradually shunning traditional city center apartments and looking for bigger houses in the suburbs or beyond.
Advice for Buyers
Buying a house is a long-term investment that is typically robust enough to ride out short-term uncertainty. Making a strong start is crucial, however. Any home buyer should seek expert advice from their lender on whether now is the right time to commit to a mortgage that could run for up to 30 years. Checking your credit score is the first step in establishing a clear picture of your financial health, as well as making a thorough list of your income and monthly expenditures.
This is a tough time to get on the first rungs of the housing ladder, but not because of the global pandemic. The main obstacle is a huge lack of new housing inventory, which impacts prices on existing stock. Many first-time buyers will find it challenging to get a loan without a high credit score or big down payment. The good news is that mortgage lending rates dropped as low as 2.9% in 2020 and should remain low. But with rising house prices canceling out any advantage, first-time buyers might want to consider waiting for the pandemic to pass before buying.
There are no winners in a pandemic, but existing homeowners have at least caught a break. If you are already on the property ladder with a degree of capital and equity to leverage, now could be the time to make your move while interest rates are low. Remote working has switched up the zip-code power league, and now could be the opportunity to acquire a second property in a rural area, upsize or escape the city altogether.
Advice for Sellers
It’s a seller’s market right now, without any signs of a shift on the horizon. Let’s consider the facts: The cost of a home reached an average of $310,000 in 2020 [Source: Forbes] and house prices will rise by around 3% in 2021. At the same time, available supply is shrinking and the level of demand has been dubbed “insane” by some experts. While this doesn’t necessarily mean 2021 is the year to sell, the conditions are ripe for cashing in.
Here’s why: if the pandemic were to continue deep into the year, job losses would follow. Federal support aside, there would be a surge in loan defaults and foreclosures, leading to an eventual drop in house prices. Homeowners who want to avoid becoming trapped in negative equity, possibly in an uncertain job market without guaranteed income, might well consider selling.
Financial Health in a Pandemic
With the coronavirus still an active threat to economic stability, it’s more important than ever to focus on building emergency savings and reducing debt in relation to income. Buying a home in 2021 could be the right move if you have guaranteed income, enough savings to cover maintenance costs (at least 1% of the purchase price each year or 1$ per square foot) and the flexibility to lock up a significant sum into a downpayment rather than in investment or retirement funds. But if your next step could leave you overexposed, stretched financially and vulnerable to factors beyond your control, 2021 might be the year to hunker down and wait for brighter conditions.
Whatever the forecast, the more you know about your current situation, the better decisions you can make. To find out about obtaining a transparent credit report that puts you back in control, check out our range of tools and services.