Dr. Rishi Manchanda toured empty homes in Los Angeles, California. By appointment only. In gloves and masks, and six feet from the real estate agent. But even in a pandemic, Manchanda and his family were still ready to buy a home.
“Nobody knew what was coming and the housing experts we talked to were uncertain about the market,” Manchanda said. “So, it came down to a simple question: ‘Do we still want to move?’”
For Manchanda and many other buyers, the answer remains yes. He’s part of the wave of homebuyers who are flooding the market after the coronavirus and state lockdowns halted the economy in April, interrupting the busiest home-buying season of the year.
Now they’re back — in spite of outbreaks and an unsteady economy — and they face old and new foes: a persistent shortage of inventory and now more stringent mortgage standards.
Taking ‘advantage of the low interest rate’
Pending home sales jumped a record 44.3% in May from April, according to the National Association of Realtors. That was the largest monthly increase since the NAR began tracking pending sales in 2001.
While activity remains down 5.1% from the same time last year, the volume of mortgage applications for home purchases have been up year-over-year for the past four weeks, according to the Mortgage Bankers Association.
“Homebuyers are rushing into the market to take advantage of the low interest rates and as the economies are steadily reopening into more sectors,” said Lawrence Yun, chief economist at the National Association of Realtors, in an emailed statement to Yahoo Money.
‘The main challenge for buyers’
Homebuyers are up against the same headwind as before the pandemic: a lack of homes for sale. Recent weekly numbers by Realtor.com show that total listings were down by 29% year over year, with new listings declining by 19%.
“The total number of homes for sale is shrinking at an accelerating pace, indicating that buyers are in the market, closing contracts on existing inventory,” said George Raitu, senior economist at Reatlor.com. “The main challenge for buyers, however, remains a supply of homes that is very tight as sellers are reluctant to put their homes on the market amid the uncertainty of the economic recession, and the still-high level of unemployment.”
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Miriam Chan, a pediatrician, noted there were fewer houses on the market when she was looking during the pandemic, and she ended up getting into a bidding war with another buyer.
“We were on the higher end of the budget as our home was listed at $775,000 and we bought it for $825,000,” said Chan, 32, who wanted outdoor space for children that her rental apartment lacked. Even though she had to bid up, Chan said the house was listed at “an unreasonably low price” and they still got a deal for the San Fernando Valley neighborhood.
“We were expecting to pay something more as homes in the area are in the [$900,000s],” she said.
‘Lenders are saying we needed to put 30% down’
Chan said all her mortgage discussions were done over the phone or online, given the unprecedented environment. “I’ve never thought it would be like this,” Chan said. She was also surprised by the down payment requirements, which have become tougher, thanks to the pandemic.
“We’re putting 20% down, which is fine, but one of the first banks we talked to asked us to put down 25%, which I believe has become standard,” Chan said. “I didn’t go with that lender.”
Chan’s experience isn’t an anomaly. Major lenders such as Chase have raised their minimum credit scores to 700 and require at least 20% down for mortgages.
“The only eye-opening experience was with the pre-approval process with the lenders saying we needed to put 30% down,” said Manchanda, who eventually settled on a 20% down payment. “That was a sign of how much conditions have changed. It seems lenders are trying to make it up as they go.”