HOME PRICES ARE UP, BUT DON'T WORRY INTEREST RATES ARE DOWN: BUYING AND SELLING HOMES DURING COVID
Updated: Jan 2
Selling and Buying Homes During COVID. It has been said that there is nothing new under the sun. Which might have been true before COVID hit the modern world. Covid has tangled its tentacles into almost every aspect of our lives including home buying and selling. Don’t worry, it's not all bad news.
The real estate market in Maryland, and elsewhere, is hot. Homes prices for sellers are UP, UP, UP. If you are a buyer don’t let that discourage you because interest rates are DOWN, DOWN, DOWN. While many aspects of home buying and selling have changed under COVID, basic principles of economics have not changed. If it is time for you to buy or sell a home don’t let COVID stop you. Be wise but keep living your life.
This is actually an excellent time to buy or sell. It is a seller’s market so if you’re selling you will get more for your home now than even six months ago. If you google home listing near me or home listing Maryland (or wherever “near me” is for you) from 2019 and compare it to 2020 in a given month, you will find that home prices have gone up by as much as 11% in some areas. Which is to say that a home which sold for $310,000 in August of 2019 sold for $344,000 in August of 2020. That is a huge windfall for the seller.
If you are thinking about selling a home, should you sell now or wait for prices to climb even higher? The answer depends on what you are doing next. If you are selling and rebuying in the same market, another market, or not at all you could make different decisions. If you are selling and rebuying (presumably a more costly home) in your same market you will want to sell sooner, see below. If you are selling but not rebuying with the money (i.e. investment property or perhaps you are moving in with family) the same financial principles apply as might in any other market. If the property is not paid off and generating positive cash flow you might keep it and let the renters pay off the mortgage. If it is paid off and you can no longer depreciate the property you’ll want to talk to an investment professional and see if you’ll get more return by investmenting in the stock market etc. vs real estate. Look at the past 20 years of real estate growth in the area the property is located vs the last 20 years of the S&P with the amount of cash you’ll have to invest. It simply comes down to the numbers.
Buyers don’t worry, your numbers look good as well. With interest rates at historic lows of around 3% the difference in your mortgage payment on the above example is $170 per month or $39 per week. You can plan on just $5.00 per one thousand in loan payments per month. That is the power of a low interest rate.
Some buyers will say they want to wait for prices to come down before they buy. No one can accurately predict what the housing market will do, but you can run a set of numbers to help you with the buying decision. If you plan to wait one year to buy a home, first calculate how much you will spend on rent. Remember, every rent payment pays someone else’s mortgage down. Average rent in my area is $1800 per month which is $21,600 per year. Will the cost of the home you might buy go down by that amount in the next year? Let’s say you qualify for a mortgage payment comparable to your rent payment (which is typically true). A monthly payment of $1850 is approximately a $325,000 home. By the end of one year of owning your home you will have paid $22,200 in mortgage payments (including property tax, homeowners insurance and mortgage insurance). Of the $22,200 you laid out, approximately $5000 goes towards the principle and therefore is equity. So, would you net equity of $5000 by continuing to rent for another year in hopes that the home prices come down? If you purchase a home sooner and the prices continue to go up, you are the one riding the wealth train in the right direction. If the prices do come down you would potentially make up the “loss” over the long run of owning a home. Don’t forget the tax benefit of home ownership also nets you higher tax refunds. One more thought on buying now vs waiting for prices to come down. If the interest rate goes up by even a half of one percent (.005), your payment on the $326,000 home would go up by $100. So if the interest rate goes from 3.5 to 4% the payment goes up to $1950. If the interest rate goes from 3.5 to 4.5% (one full percent increase) the payment goes up by $280 per month! What you risk by waiting is a higher interest rate which is much more likely than the prices of homes coming down.
How we look at homes to buy and what we do to sell them has changed under COVID only in that we are employing techniques we have been using for the past 5-8 years more fully and routinely. While many good agents have been using professional photos and video for years it has become essential. Before COVID (should we call if BC, no, that’s taken), photos gave the potential buyer enough information to see if they wanted to visit the property in person. Now the photos can make or break the actual sale. When I look up home listings in the MLS the houses with the most days on market (how long the home has been listed) are typically those with no photos, poor photos or iphone vs professional photos. If a potential buyer can’t get a good look at the property they pass it up. I have worked with many buyers who spend hours googling home listings for sale near me, but quickly dismiss potentially good properties based on the photos. It is and always has been a natural tendency to click off, but the stakes are higher now. So if you are selling, make sure you have top quality photos and video.
The big change in home buying and selling is in the physical walk throughs. We are all experts in COVID protection behavior in public. Home viewing is no different. Even though many of the homes are vacant, buyers and agents use face masks when entering a home, use sanitizer before and after, and sometimes even don booties. If the homeowners do still occupy the property they will vacate during the showings. Modern technology makes it so easy for buyer’s agents to book a tour and for sellers to know that time. The seller often takes a drive, gets the shopping done, or just hangs out on the back patio while the potential buyers tour the home. If several agents and their clients are looking at the same home a polite line will form outside the property. People hang out in the car and wait their turn. I live in the rural tier so most of the home listings near me do not have lines of viewers. Since the market is so fast a home is usually not on the market for more than a few days in some areas. The total number of people that actually view the home in person is not that great. I start my listings with an open house. This means the seller can vacate for the weekend and after one full day of COVID controlled viewings the home is sold. This way I know exactly who was in the home, I know no one has touched light switches or door knobs because I had all of that set ahead of time. In my listings that do not sell on the open house, I leave the lights set for showing and include notes in the MLS to agents to not touch or change lighting.
Another route that many agents are using is to take their clients on a virtual tour. The agent physically goes to the home and jumps on facetime with their client. This way the buyer can look at the details and ask questions that are the most pertinent to their needs. I recently had a buyer who is particular about storage space, so our virtual tour included a deep dive into all the closets, attic, basement, garage, and even the shed. Most video tours and photos would not have included the details she was most keen to see. I probably did virtual tours on 7 or 8 homes before she found the one. My client only had to visit 2 homes in person.
So whether you are a seller hoping to capitalize on home prices going Up, Up, Up or a buyer taking advantage of interest rates going DOWN, DOWN, DOWN, jump in and do your real estate the COVID way, masked.