Is It Still A Good Time To Buy?
News around us regarding the impact of the COVID-19 pandemic is unfolding hour by hour, thanks to the speed at which we receive information. Schools are out for the rest of the 2019-2020 school year, businesses are furloughing workers, new unemployment filing has surged exponentially, and shelter-in-place orders keep tightening and extending.
So what does this all mean for the housing market?
Unlike the Great Recession of 2008, where the housing market was at the center of the crash. This time around the housing market is a byproduct of the effects of a potential recession due to the present ongoing pandemic. The CARES Act, signed into law on March 27, 2020, introduced several pieces of legislation aimed at providing relief to American households. The specific piece that relates to the housing market allows homeowners that currently hold government-backed mortgages (think loan programs aimed at first-time homebuyers and veterans), to put their mortgage payments into forbearance for up to 90 days, no questions asked. Sounds great, right? Well, it could potentially lead to some frustration for both consumers and the housing market as a whole for a couple of reasons:
On the consumer side, little to no guidance was given to mortgage companies and loan servicers for how to handle the missed payments. A loan servicer could choose to collect all furloughed payments at the end of the relief period. So, temporary relief could result in a huge burden for the homeowner at the end of the forbearance period. Many lenders are allowing homeowners to defer payments for the 90 day period and resume payments as normal at the end, thereby extending the loan term. If you are affected and choose to delay your payments, it is imperative that you fully understand the terms of your forbearance period, as the terms could vary on a case-by-case basis under the way the legislation was written.
On a larger scale, the impact of homeowners seeking mortgage payment forbearance could cause domino effect in the housing market. That is because mortgage servicers are still required to make payments to investors on the secondary mortgage market, even though they are not collecting from the homeowner during this time. This could cause a severe impact to a mortgage servicers cash flow, and therefore their capacity to lend. Simply put, if lenders can’t fund new purchase mortgages due to being on the hook for their current portfolio’s furloughed payments, the housing market could come to a screeching halt as most homebuyers purchase using a mortgage. But, it should be noted that this is the worst case scenario.
My intention in writing this isn’t to come from a place of doom and gloom, but more so to advise you of what the talk of the industry is right now. As I stated initially, news is coming to us hour by hour and the climate could very well change by the time you read this to the end.
The original question was, “Is it a good time to buy?” In order to responsibly answer that question, I felt that I had to give you the above information to provide some context and clarity. Due to the amount of homeowners filing for mortgage payment relief, some evaluation criteria for loans has tightened. Minimum credit scores have seen an increase for certain loan types (think of the ones impacted above) and lenders may want to see more cash reserves available. Increased lending standards could mean less competition, something that we have all been struggling with on the buyer side for the past couple of years.
So far, there hasn’t been any indication of declining home prices, so your dreams of buying a mansion for $3.99 aren’t coming to fruition at this time. Interest rates are fluctuating, but are still attractive.
So, taking ALL of the above factors into account, my short answer to this question is yes, it is still a good time to buy a home if you are in a position to and are not facing income uncertainty. Homes are still available are still selling, the process is just a bit more unique due to shelter-in-place guidelines. So be prepared to take more virtual tours and wear gloves, booties, and slather on the hand sanitizer for in person showings.
PS – If you are still able to make your mortgage payments in a timely manner, please do so. It’s kind to the economy and frees up the servicer’s time for the people that are in dire need. If you are seeking mortgage relief, make sure you are asking your loan servicer the following questions:
1. What relief are you eligible for? (This could vary, depending on who owns your loan)
2. When will the delayed payments be due?
3. How will this impact your credit rating?
4. How will this impact your escrow account? (The account that saves & pays your property taxes and homeowner’s insurance)