With spring homebuying season disrupted by the coronavirus, would-be house hunters may be wondering if this fall will be a good time to buy.
The housing market is typically slow after August, as kids settle in for the school year and the weather starts to cool in much of the country. But, this year, the answer to that question—like so many posed since the start of the pandemic—is maybe, it depends.
To help you make the best decision for you, we’ve outlined a few expert predictions, as well as four pros and three cons of purchasing a home this fall.
Pro: Virtual school removes a common barrier to moving
Parents are not usually inclined to buy a home if it means yanking their kids out of school and moving to a new school district. Most homebuying happens in the spring, in part, so families can move over the summer. But some experts predict that may not be as big of a concern this year with many schools staying online only. Public school districts in many cities, including Los Angeles, Washington, D.C., and Philadelphia, have already announced they’ll be starting the academic year with all virtual classes. Buying a home and moving this fall may be “less disruptive” for kids who are already learning remotely, says George Ratiu, Realtor.com’s senior economist. In other words, parents may be able to house hunt with less time pressure.
Pro: You can nab a great mortgage rate
Earlier this month average mortgage rates dropped to 2.88%, the lowest ever for a 30-year home loan. Rates should remain low through the end of the year, says Guy Cecala, chief executive and publisher of Inside Mortgage Finance. The policy makers at the Federal Reserve have indicated they expect to keep the short-term federal funds rate at its current range of 0% to 0.25% through 2022, pushing mortgage rates in the same direction. Cecala predicts 30-year rates could even drop as low as 2.5% this fall. “The normal mortgage rate barometers—the 10-year Treasury rate and the Fed rate—already are at levels to support mortgage rates below 2.5%,” Cecala says. “The only reason mortgage rates are above that level now is that lenders have not felt the need to be very competitive and offer rates that low. So, it won’t take much to get to 2.5% or below.”
Because lower mortgage rates mean lower mortgage payments, your money goes farther when interest rates are low.
Pro: New construction has picked up
Buyers who are in the market for a brand new home will have more options this fall. “I think we’ll see builders playing catch-up to compensate for the lockdown period earlier this year,” Ratiu says. Already, builder confidence in the market for newly-built single-family homes jumped 14 points in July, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) report. Moreover, single-family housing starts and permits posted double-digit growth in June, the NAHB reports. Therefore, buyers will have significantly more new homes to choose from this fall.
Pro: Homes prices could go down…
Buyer demand drove up asking prices 8.5% in July from a year ago, Realtor.com reports, pushing the national average median list price to a record-high $349,000. Of the nation’s 50 largest metros, 48 saw year-over-year gains in median listing prices last month, with suburbs surrounding big cities driving much of the gain
However, Zillow forecasts a 2% to 3% drop in home prices through the end of 2020 from pre-coronavirus levels if buyers step back from making big home purchases and social distancing again restricts home appraisers and inspectors from offering their services. If that happens, more buyers will be able to purchase homes.
The caveat? Some cities have seen rapid growth recently: The median list price in Pittsburgh, Pa. rose 25% last month; the median list price in Cincinnati, Ohio jumped 18.5%; and in Los Angeles the median list price rose 24.3%. As a result, some buyers have already been priced out of their local market.
Con: …or home prices could go up even more
Recent forecasts by Zillow and data analytics firm CoreLogic predict that national home prices will decrease slightly in the coming months, but if mortgage rates stay low and continue motivating buyers to enter the market, home prices may climb through the end of the year.
Jaime Sneddon, a broker at William Pitt Sotheby’s International Realty in New Canaan, Conn, says he thinks home prices in his market will go up—without pricing buyers out of the market. “There’s a lot of room for home prices to grow before they start to look unaffordable,” he says.
Con: Supply will be limited
The national total supply of homes for sale in July declined 32.6% year-over-year, according to Realtor.com. That amounted to a loss of 440,000 listings compared to July of last year. “Inventory has been tight because sellers were reluctant to sell during the pandemic, given the quarantines and steep drop in [foot] traffic,” says Ratiu.
First-time buyers, especially, may face a severe inventory shortage. “This year’s pandemic accelerated the shortage of entry-level homes, as buyers—eager to leverage historically low mortgage rates—came back from the quarantine looking for a solution to the new normal of social distancing and remote work.”
Con: Competition will be fierce
“It’s firmly a seller’s market, and there’s no indication why it wouldn’t continue to be a seller’s market this fall,” says Owen Berkowitz, a co-principal of the Berkowitz Marrone Team with Douglas Elliman in Scarsdale, NY. Because inventory is low, Berkowitz says he’s seeing bidding wars on most homes. Buyers will have to move fast—according to brokerage Redfin, 46% percent of homes that went under contract during the four-week period ending August 2 found a buyer within two weeks of their market debut.
Sneddon also expects sellers to retain negotiating power this fall—meaning buyers may have to bid above list price and may end up making offers on multiple properties.
To compete, purchasers will have to obtain a mortgage pre-approval letter before they make an offer. Buyers should get quotes from three lenders before selecting their mortgage provider to nab the best mortgage rate and loan terms for them.