Residential Magazine

The Pandemic Continues to Shape the Housing Market

Mortgage professionals can help borrowers navigate these shifting conditions

By Tian Liu

As much as the mortgage industry and the rest of the world would like to shift to a post-pandemic mindset, the reality is there’s still an uphill battle to be fought. The good news is that progress has been made — and continues to be made — in the fight against COVID-19.

But important changes to market conditions should be expected as coronavirus cases decline. Educating potential homebuyers and understanding their goals, while incorporating market conditions into borrower decisions and setting reasonable expectations, are areas where mortgage originators and lenders can add value.

Valued homes

Remote work is still driving activity in the housing market. Homes are now the center of most people’s lives, both for work and play. They have become people’s gyms, restaurants, offices, movie theaters and more. Zillow surveyed more than 1,000 Americans this year and found that remote workers were far more likely to move while 44% wanted to work from home without having to venture to a workplace. This increased emphasis on homes is likely to stick around for some time.

The impact of remote work on the housing market also can be seen from an unlikely area: the rental market. The increased willingness to pay for a rental is a telltale sign of just how important homes have become to people. Unlike homeowners, renters do not benefit from lower interest rates. This makes changes in rent a good measure of how much people value the comfort of a home, regardless of housing-market conditions.

According to Invitation Homes, a major single-family rental company, rents for new leases grew by 13.8% year over year in second-quarter 2021, while rents for renewals grew by 5.8% year over year. These figures represent significant increases in the value that people place on single-family homes.

Even though there still is a ton of value in having a home, competition seems to be settling down. Redfin reported that 58.8% of the home offers written by its agents this past August faced competition — the lowest level of the year to that point. Also, as homebuying activities begin to return to a semblance of normalcy, some real estate experts predict less urgency to buy, according to a recent Forbes article. Ultimately, time will tell when it comes to competition in the market as there are many factors that can impact it.

Individual circumstances

As the pandemic continues, the big question is when homebuyers should enter the housing market. There are many potential first-time buyers on the sidelines and demand will likely be strong over the next few years as these consumers continue to enter the market. According to census figures, an average of 4.4 million people celebrated their 33rd birthday in each of the past five years, thus entering the peak age for a first-time home purchase. This number is expected to increase to 4.7 million per year over the next few years.

The stakes are even higher right now after a historic 19.9% increase in home prices between August 2020 and August 2021, according to the S&P/Case-Shiller index. Helping buyers get to the “right answer” can be rewarding for both borrowers and lenders, but arriving at this point is nuanced and can vary from buyer to buyer based on individual needs. For many potential buyers, the question is not if but how soon. And some may find that paying a premium today is worth it.

When it comes to deciding the timing of a purchase, a powerful reason to buy now is the historically low interest rates. The 30-year mortgage rate reached a low point of 2.65% in January 2021 before rising to slightly more than 3%. Higher rates, however, could put pressure on housing affordability and even bring a correction to home prices. Potential buyers should consider this if they are likely to move and sell their current home. For potential buyers who are willing to stay put longer, this is less of a concern.

Keeping a realistic expectation about home-price appreciation is a must in the current market environment. One of the great lessons from the financial crisis of the late 2000s is that homeowners should not expect large price gains to continue indefinitely. Historically, homes offer relatively modest appreciation in value, so the rapid appreciation of the past two years could mean more muted price growth in the future. Buyers need to be aware of (and comfortable with) slower price growth in the years to come.

One of the reasons for rapid home-price growth is that construction has lagged demand. But this trend has started to reverse itself during the pandemic. Many homebuilders sold out new communities and had to scramble to acquire land, and today there is a burgeoning pipeline of homes permitted but not started. Many of these units will likely be completed in 2022, meaning that supply is likely to grow significantly. This should turn the market from one heavily in favor of sellers to something more balanced, and it may make sense for some potential buyers to wait.

This is why today’s market calls for a better understanding of homebuyer circumstances. Does your client have a family and need space right now? Are they a recent college graduate who feels no pressure to settle down right away? Do they have debts with high interest rates?

For many prospective buyers, low rates and an increased need for a home make now a good time to buy. For others, it might pay to wait. Builders will likely deliver more homes in the next few years, bringing more balance to the market. If your clients prefer working from home, owning a home in an affordable location with favorable tax rates could be a good option. Being in tune with factors like these is crucial in helping borrowers make the best decision.

Universal strategies

Based on where the market is expected to go and what an individual buyer’s situation is, mortgage professionals must be able to give counsel to clients. Everyone is different, but there are a few steps every homebuyer across the board can and should take.

The first is to manage credit responsibly. For younger buyers or recent graduates, it is important to consider the state of any student loans. Waiting may be preferable for these people so that they have time to pay down student debt before buying a home, which will improve their credit scores and help them qualify for a more favorable rate on their home loan.

Other types of buyers should be mindful of any big purchases they are planning, as these can affect the mortgage they are eligible for. This is a mistake that some borrowers, especially first-time buyers, tend to make. Lenders and originators must be sure to educate borrowers on the factors that can affect eligibility, such as buying a new car or financing any other large purchases.

Every homebuyer, regardless of their situation, should strive to have savings in place. This is not only to cover the downpayment but also to protect the buyer from unforeseen circumstances. As many people have witnessed over the course of the pandemic, situations can change rapidly. Employment status can be affected by a multitude of factors. Having substantial savings can help protect consumers from setbacks that could negatively affect their homebuying journey.

When saving, borrowers should think of the best vehicle for their savings. If they plan to wait a while, they could invest in the stock market, since it often takes time before seeing substantial returns. If they plan to buy soon, however, having cash saved up is best, as their money must be easily accessible and safe from any market volatility associated with investing.

● ● ●

The housing market experienced significant turbulence in the past two years as a result of the COVID-19 pandemic. Consequently, people have put more value on homeownership than ever before, borrowing costs reached a historic low, homes became highly sought after and prices increased significantly. These conditions have been shifting recently and will likely change even more in 2022 as the pandemic continues to wane.

With these sizable shifts in market conditions, mortgage professionals can prove invaluable in guiding borrowers to their very own place to call home. This requires hand-holding, education and setting the proper expectations. Most of all, borrowers must be able to understand their own needs. ●


  • Tian Liu

    Tian Liu served as chief economist for Enact (formerly Genworth Mortgage Insurance) from 2014 to 2022. In this role, he was responsible for tracking and analyzing U.S. and regional economic conditions. His commentary on the housing market has appeared in The Wall Street Journal, The New York Times, CNBC, The Washington Post and other notable publications. Liu has a master’s degree in economics from the University of Chicago and an undergraduate degree in economics from the Australian National University. The statements provided are the opinions of Liu and do not reflect the views of Enact or its management.

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