San Francisco Chronicle - (Sunday)
Low mortgage rates ignite record home sales and bidding wars
Buyers are flocking to the summer real estate market as states reopen and mortgage rates fall to record lows.
Contracts for previously owned U.S. homes surged in May by 44.3 percent, the most ever, as states began to reopen from coronavirus lockdowns, according to The National Association of Realtors’ index of pending home sales released today.
The boom in May followed April’s collapse, when sales fell to their lowest level in 19 years.
Purchase activity has increased above yearago levels for five straight weeks, according to data from the Mortgage Bankers Association.
“COVID19 really slowed things down earlier in spring, when the homebuying season usually begins, so now we have pentup demand at a lot of buyers out there” says Michael Becker, branch manager at Sierra Pacific Mortgage in White Marsh, Maryland. And the market may only get more active.
“Home sales will surely rise in the upcoming months with the economy reopening, and could even surpass oneyearago figures in the second half of the year,” Lawrence Yun, chief economist at the National Association of Realtors (NAR), said in a statement.
Undoubtedly, it’s not only pentup demand driving this rebound homebuyers are finding it difficult to resist rockbottom mortgage rates as well.
Just this week, the average 30year, fixedrate mortgage dropped to 3.42 percent, a new record low, according to Bankrate’s weekly survey of large lenders. Rates are expected to remain low in the coming weeks and even months.
Low mortgage rates and a reopening economy may be prompting buyers to get out and shop, but choice is limited. Inventory is low across the nation.
“The inventory of existing homes was tight before COVID hit, and now it seems it’s only worse,” says Becker.
Unsold housing inventory sits at a 4.8month supply at the current sales pace, according to data from the NAR. That’s up from the prior month when inventory was at just a fourmonth supply, but it’s still far too little. “New home construction needs to robustly ramp up in order to meet rising housing demand,” Yun said. “Otherwise, home prices will rise too fast and hinder firsttime buyers, even at a time of recordlow mortgage rates.”
All of this means that buyers in many markets could face heavy competition as they vie for homes this summer.
“It seems like every desirable home has multiple offers,” says Becker. “Sellers are selling their homes in days, not weeks. I am seeing buyers offer over the listing price, have escalation clauses where they will beat any other offer up to a certain price, and drop their requests for the seller’s help.”
That competition is making it tough for firsttime homebuyers who may need downpayment assistance or closing cost help, since their offer is less attractive than others who don’t request or need assistance, he notes.
Here are a few things that can help you compete in a hot market, according to Becker:
Get preapproved for a mortgage, rather than scramble to get your lender documents once you find a home.
Use technology to your advantage. Many lenders have a smartphone app that allows them to email or text a client so they can apply in real time.
In the most competitive markets, offer full list price, over list price or use an escalation clause.
Don’t the seller to help on closing costs.
If you have the ability, make a larger earnest money deposit to show the sellers you are serious.
Talk to your agent about strategies to make your offer stand out.
It also helps to think outside of the box.
“I had a recent contract where the borrower wrote to the sellers and told them why he wanted to buy their home,” says Becker. “I have even been asked by buyer’s agents to call the listing agent to let them know how strong the buyer’s application is.”
Not all homebuyers will be able to get in on low mortgage rates in this market. “Borrowers who are getting the best rates are those with strong credit,” says Becker.
According to a recent report from the Urban Institute, borrowers with credit scores above 720 are receiving mortgage rates 78 basis points lower than those with scores below 660. The spread is even wider in the nonbank space.
If you have less than 20% for a down payment, having solid credit can help you get lower private mortgage insurance rates as well, says Becker.
Those with lessthanexcellent credit still have options, but it isn’t as easy to qualify as it once was.
For example, Becker says that many lenders have raised the minimum credit score for FHA loans to 620. Prior to the pandemic, his brokerage would take a score as low as 580.
If you can’t get a loan or the mortgage rate you want, take steps to improve your credit.
“Borrowers just need to have a plan of action for the future if they don’t qualify now,” says Becker. “Remember, no doesn’t mean never.”