COVID-19, the stock market roller coaster, and social unrest have led to a volatile environment. We're also seeing the lowest mortgage rates of all time, along with uncertainty about where those rates are headed. In June 2020, according to Bankrate, 17% of mortgage experts predicted that rates will drop even lower, but 42% predict they will stay the same or climb slightly higher.
Buyers are taking advantage of low single-digit rates to upgrade, buy second homes, invest in income-producing properties, and make other real estate moves to take advantage of this attractive new environment.
5 Ways the Real Estate Market Has Changed
- Buying patterns have shifted. During the height of the pandemic, people were hesitant to make real estate decisions. But now that restrictions are being lifted, analysts predict a "W-shaped" real estate pattern, with sales increasing between July and September. COVID-19 also prompted some consumers to leave major cities and rethink their living situations.
- Inventory is low, which can result in a "feeding frenzy" among buyers and investors. The best properties will go quickly, so be prepared for bidding wars. Use comprehensive and reliable data to ensure that you or your clients are not overpaying. Today's impulse purchase can be tomorrow's investment regret.
- Buyers are acting quickly. "Some buyers are behaving more decisively than usual," asserts John Castle, an Ontario-based real estate agent. Adds Michael A Kelczewski, associate broker at Brandywine Fine Properties in Delaware, "Lower interest rates are helping on-the-fence buyers position themselves to purchase. The increased budget benefits prospective buyers during competitive bidding scenarios."
- Lenders are exercising caution. As consumers and investors become more zealous in this lower-rate environment, lending guidelines have become more stringent and underwriting and approval processes have slowed, observes Troy Palmquist, founder/broker at The Address Real Estate in California. Savvy brokers and agents are encouraging their clients to prepare to buy long before they put in offers.
- Some buyers have to put more down. Lenders are also establishing new requirements for real estate investors. "Although interest rates have dropped, lenders are putting nine to 12 months of debt payment in escrow and asking for higher reserves," notes Ellie Perlman, CEO of Blue Lake Capital. This will ultimately lower investors' returns.
How Real Estate Brokers and Agents Can Respond to Lower Rates
Data is more important than ever. Your clients will expect you to stay on top of available properties and neighborhood trends. Establish yourself as a trusted advisor and share up-to-date information with them as you see it. Savvy and customer-focused brokers and agents include up-to-date mortgage data in their e-newsletters and share it on social media. Educating your clients — especially first-time homebuyers — on how to prepare to buy a home is also critical.
Plan for a busy summer. According to CNBC,
"As states reopen, so are open houses, and buyers have been coming out in force, if masked. Record low mortgage rates, combined with strong pent-up demand from before the pandemic and a new desire to leave urban downtowns due to the pandemic, are driving buyers back to the single-family home market."
Above all, this is a time to shine. Your people-centric relationship-building and communication skills will come into play as you work with deal-hungry consumers and investors. Although no one can really predict mortgage rates from week to week, providing the latest information and a calm and logical perspective throughout the process will build trust that lasts long after this low-rate selling season.