Home Prices Are Rising, Along With Post-Lockdown Demand

By Ann Carrns

The real estate market is challenging this spring — all the more so because lenders are checking, and rechecking, borrowers’ finances in response to the economic turmoil of the pandemic.

Credit...Till Lauer

Mortgage rates may be appealingly low, but people shopping for a new home this spring face a challenging market.

Demand, which was pent up during coronavirus stay-at-home orders, and a dearth of homes for sale are keeping prices high and setting off bidding wars in some areas as states continue to reopen for business. Some buyers may also find it tougher to qualify for mortgages, as lenders require higher credit scores and bigger down payments in response to higher unemployment and economic uncertainty in the pandemic.

The situation is different from the economic downturn in 2008, when home prices fell sharply as a housing bubble popped.

“We’re still seeing a huge sellers’ market,” said Colsie Searcy, an agent in Colorado Springs.

Nationally, the median price for a home, excluding new construction, was about $287,000 in April, up more than 7 percent from a year earlier, the National Association of Realtors reported.

Housing supply was already tight in recent years, especially for first-time buyers, because of the sluggish pace of new construction, said Danielle Hale, chief economist for the listing site Realtor.com. Then uncertainty because of the pandemic gave buyers cold feet, leading some sellers to pull their homes from the market.

Home sales in April were down about 18 percent from a year earlier. Declines were particularly steep in the West. But Realtor.com reported this week that there were signs of improvement in May, “setting the stage” for continued recovery over the summer.

Now, with many states lifting restrictions on home tours, the housing market is reawakening. Shoppers are feeling more comfortable visiting properties: About two-thirds of people who attended an open house within the past year said they would attend an open house now “without hesitation,” a separate survey from the Realtors association found.

But some sellers remain cautious. They want to show homes by appointment only, and they want offers from serious buyers who have been preapproved for financing, said Lawrence Yun, chief economist with the association. “They don’t want casual shoppers,” he said.

Jay Rinehart Jr., a broker in Rock Hill, S.C., said he did a lot of “coaching” to prepare buyers for the market. (He sells homes in South Carolina as well as in North Carolina, near Charlotte.) He recalled that early last week, seven homes were available in a client’s price range. By the end of the week, there were just three.

Because the market tilts in favor of sellers, Mr. Rinehart advises buyers to ignore certain issues, like minor repairs, that they may have negotiated over in a less heated market. “This is an unusual time,” he said.

Diana Ragland said she and her husband had started looking for a larger home for their family in Colorado Springs in February, but put their search on hold when in-person home tours were suspended because of the pandemic.

“We weren’t willing to make an offer when we could only do virtual tours,” she said. “I have to physically walk through and get the smell of the house.”

In May, with the restrictions lifted, the couple were able to tour a new house that met their needs, and their offer was accepted within a few days. Their old house went under contract in just two days, and both properties are expected to close on the same day this month.

While most shoppers balk at buying properties without visiting them first, that has sometimes been necessary during the pandemic, said Donna Deaton, a relocation specialist in the Cincinnati and Dayton, Ohio, areas. While traditional open houses are returning in some markets, she said, some property owners still prefer that shoppers make appointments. Buyers who sign up for the first available slots get to make the first offers, leaving those with later appointments out of luck.

“We are scrambling to find homes for buyers,” Ms. Deaton said.

One problem, she said, is that some sellers are reluctant to put their homes on the market because they worry they won’t be able to find a new property for themselves and will have to rent while they shop.

In some cases, homeowners who were planning to sell have decided to remain where they are and renovate instead, adding home offices because they expect to commute less, said David Legaz, a broker with Keller Williams in Flushing, N.Y., and the president-elect of the New York State Association of Realtors.

Here are some questions and answers about the spring home-buying market:

What’s happening with mortgage rates?

One bright spot for shoppers is that mortgage interest rates are near historic lows, which is helping buyers afford those pricier homes. The average rate on a 30-year, fixed-rate mortgage was 3.18 percent for the week that ended Thursday, up from 3.15 percent the previous week, according to Freddie Mac, the mortgage finance giant. A year ago, the average was 3.82 percent.

The low rates have increased the number of mortgage applications, but some borrowers may find it difficult to qualify for a home loan as banks raise their standards amid the economic turmoil of the pandemic. Borrowers can generally expect banks to require higher minimum credit scores and larger down payments, said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication.

The situation is particularly challenging for first-time home buyers, who are more likely to use Federal Housing Administration loans that allow lower down payments and credit scores. The F.H.A. insures loans for borrowers who put down as little as 3.5 percent if they have credit scores of at least 580. But lenders may set stricter standards, and some are requiring higher minimum scores and 10 percent or 20 percent down, Mr. Cecala said.

Terms may also be tougher for borrowers at the other end of the spectrum — those seeking “jumbo” loans. While banks sell most mortgages to investors, jumbo loans are typically held by the original lender. With many demands being made on their funds in an uncertain economic environment, banks are being cautious.

“Banks are stretched,” said Mike Fratantoni, chief economist with the Mortgage Bankers Association.

Because many people have lost jobs or been furloughed, lenders are now typically doing a second employment verification just before the closing to be sure the buyer can afford to repay the loan.

  • Updated June 5, 2020

    • The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.

    • Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.

    • Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.

    • States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.

    • Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.

    • If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)

    • The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.

    • If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.

“It’s hard to get a handle on someone’s job situation,” Mr. Cecala said.

He advises borrowers to shop around by checking loan terms at traditional banks, finance companies like Quicken Loans and credit unions.

How is being preapproved for a mortgage different from being prequalified?

It’s more important than ever to be preapproved for a home loan — not just prequalified — when shopping in many markets, agents say. Preapproved means you have submitted income information and undergone a credit check, and have been given the green light to borrow a specific amount of money. Being prequalified is more of an estimate.

How should I prepare for a home tour?

Rules vary by location, with areas hard hit by the virus returning to normal practices more gradually than other parts of the country. In New York City, in-person showings aren’t expected for at least several weeks, Mr. Legaz said. For now, agents can offer a virtual tour by walking through a property while a client watches remotely — but they can’t visit with the client.

Despite the challenge, Mr. Legaz has had three properties go under contract in the last three weeks or so, he said.

Parts of northern New York are in the second phase of the state’s reopening plan, and agents can visit properties with buyers as long as they follow certain rules, said Jennifer Stevenson, president of the New York State Association of Realtors. Ms. Stevenson, a broker in Ogdensburg, said she had been showing houses since May 29.

Even in areas resuming on-site visits, shoppers should be prepared for differences. Masks are often required, and you’ll need to limit your party to “decision makers,” agents say. (In other words, leave the children with a family member or sitter.) Home sellers are being advised to turn on the lights and leave interior doors open where possible to reduce the need for visitors to touch surfaces. (Agents typically walk through the house again after the tour, cleaning handles, banisters and countertops with disinfectant wipes.)

It’s wise to do as much research online as possible to reduce the amount of time you’ll need to do the walk-through.

Even where visits are allowed, not all sellers are comfortable offering them. Mr. Rinehart, the broker in South Carolina, said one seller was reluctant to allow tours until the person’s child goes to summer day camp.

“People are saying, ‘Nobody is coming into the house when the kids are here,’” he said.