Unprecedented housing boom puts pressure on buyers

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Past housing booms have lifted home prices in certain corners of the country, such as California and New York, while skipping much of the rest of the nation. But today’s coronavirus-spurred housing frenzy is lifting home values everywhere.

Brian Smith, regional manager and mortgage advisor at Union Home Mortgage in Ohio, says bidding wars and rising prices are common there, too.

“It’s like nothing anyone has ever seen or experienced before,” he says.

From February 2020 to February 2021, home prices jumped a robust 13 percent in Cleveland, 12 percent in Detroit and 11 percent in Dallas, according to the S&P CoreLogic Case-Shiller home price index.

None of those markets experienced double-digit growth in the earlier boom. The more evenly distributed gains reflect a housing market driven not by local speculation but by a broader imbalance of supply and demand.

Smith spoke to Bankrate.com about how buyers can cope with this red-hot mortgage market.

How would you describe the housing market? 

Smith: Fast and furious. It’s like nothing I’ve never seen before. We are at record, record low inventories. Real estate is an unusual industry. Inventory is based on someone waking up one day and saying, “I want to sell my house.” For a homebuyer to be successful in this environment, they have to make decisions quickly. A customer will get a preapproval for a certain amount, and then they might find there’s nothing available in that price range.

I work in Cleveland, Toledo and Columbus. All those markets are on fire. They’re just hot, hot, hot. In Sandusky, there’s one house priced at $250,000 to $350,000 – one. One single listing. In a regular market, when a real estate agent puts an offer in, you’ll have a contingency for an inspection or an appraisal, maybe a pest inspection. Maybe the bidder will ask for some money to go to closing costs. Now, the conversation goes to what can we remove from the offer to make our bid rise to the top? I don’t like it at all from a buyer’s perspective – the buyer’s protection goes out the window.

What advice do you give buyers about navigating this intense seller’s market?

Smith: Be crystal clear about your goals. The first thing a buyer needs to do is have their goals clearly defined. The very first goal to determine is how much money they want to invest in this purchase, and how much they want their monthly payment to be. Then we need to talk about the maximum that you’re willing to go to if you get in a competitive bidding situation, where emotions are running high.

Defining that maximum is one of the keys. When you’re in the heat of the moment, logic gets thrown out the window. You don’t want a five-minute emotional decision to put you into a 30-year mortgage you can’t afford. So you have to know your numbers. Before you start making offers, imagine yourself being one of 15 bidders competing for a property.

What mistakes do you see buyers making?

Smith: The buyer who doesn’t have the right real estate agent in this market is making a mistake. You want somebody who has knowledge of that market, who knows the history of that market. You should hire someone who does 20-plus transactions a year, and who has the benefit of 10 years of experience in the business.

And make sure you get a preapproval. There are loan officers that will talk to a consumer, maybe run their credit, but not verify their income or their assets. There’s a big divide between good quality mortgage lenders who give full loan approvals based on verified income, assets and down payment – that customer is completely ready to borrow money. When we give a preapproval, we base it on what the consumer wants, but we also give a maximum. If you came to me and said, “I want a $2,000 monthly payment,” I’d say, “OK, including taxes and insurance, that qualifies you for a $300,000 home.” But then I’d say, “Based on your income, you can qualify for more than that.” So maybe you’d say you don’t want to pay more than $2,500 a month, and I’d approve you for that as a maximum.

How much longer will this intense seller’s market last?

Smith: Is the population going to stop growing? Are interest rates going to stay low forever? Are the economy and the markets going to continue to be robust? When is the next recession going to take place? Those are the keys to how long this is going to last. Right now, for the foreseeable future, you look at all those questions, and you conclude we could be in this market for a while.

Where do you see rates going? 

Smith: The market is heading to 3.5 percent to 4 percent this year. Past 2021, I wonder about the stimulus money. When the ripple effects are out of the economy, then what?

Is the refi boom over?

Smith: Not at all. We’re still doing tons of refinances. Some people are quick to make refinance decisions. Some people need to hear the refinance message one time and they take action. Some people need to hear the message 10 times, or 20 times, and then they act. And some people wait until the opportunity is almost gone. For whatever reason, there are a lot of people who haven’t refinanced. Sometimes they’re too busy.

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