“Beyond crazy and frustrating” – how hard is it to buy a home right now? - Movement Mortgage Blog

According to CBS News, the pandemic-era real estate market has emerged as a windfall for sellers and a headache for buyers. A shortage of for-sale homes continues to boost prices across the nation by double-digits – and is pushing house hunters to go to extremes to win bids. 


Take a home near the Microsoft campus outside of Seattle that was listed for about $725,000. The buyers made a bid without seeing the home, offering $400,000 above asking price and waiving all contingencies – meaning no inspection or mortgage-financing contingencies were required, recalled Ryan Dibble, the chief operating officer of Flyhomes, which represented the seller in the deal. “Even we were a little bit like, ‘Wow, that’s aggressive’,” Dibble recalled. 


About 1 in 5 first-time homebuyers had to go above their budgets to buy a home, and more than 1 in 10 waived contingencies, according to a Realtor.com survey earlier this year. Another 1 in 5 spent more than a year on their real-estate hunt, the survey found. 



Increasingly, offering above asking price isn’t enough to win a bid in the ultra-tight pandemic housing market, according to realtors and buyers. Indeed, going above the asking price is simply the first step in winning an offer, with buyers increasingly offering additional enticements, including waiving inspections for hidden structural problems and providing free “leasebacks” to sellers, or offers for sellers to remain in the homes between one to six months after closing – free of rental charges. 


The pandemic also prompted people to look for new homes, especially properties with home offices and outdoor space given the confinement and work-from-home trends of the last year. And while existing homeowners can get eye-popping premiums for their properties, some are reluctant to sell because they worry about their ability to find a new home given rising prices and widespread lack of inventory, which is adding to the logjam in the supply of available housing. 


The real estate market’s surge in prices and demand is stirring up memories of the housing bubble leading up to 2006. The painful bursting of that boom, which fed into the Great Recession of 2008, is raising questions about whether the market is repeating history. But lending standards are much tighter than they were prior to 2006, with buyers being required to provide tax data, paychecks and other information to confirm they can afford a mortgage, and that decreases the likelihood of a repeat housing crisis, experts said. 



In a hyper-competitive housing market, down payment and credit score are more critical than ever


According to Real Simple, a new LendingTree study finds that in the nation’s most competitive housing markets, buyers have to work harder than ever to set themselves apart.


Here’s a snapshot of the current reality across the nation: The average down payment in the top 11 most competitive metros in the United States is 21%, according to a new LendingTree study. In some places, like San Jose, California, Hartford, Connecticut and Cleveland, Ohio, down payments of 22-23% are the local average. Furthermore, a staggering 73% of buyers in those competitive metros have credit scores of at least 720. 


In other words, this isn’t your typical rodeo. If you want to be successful in landing the home of your dreams (or landing a home, period), it’s best to have your finances in tip-top shape.


Most home buyers obtain pre-approval for a mortgage from a lender to finance the bulk of the property purchase. And the sale contract will be contingent on the buyer ultimately securing that mortgage if their offer is accepted by the seller. In the event the prospective buyer does not get approved for that mortgage, however, they can cancel the purchase contract, leaving the home seller in the lurch.


“When a homebuyer has a strong or high down payment and fair credit score, it gives the presumption that the buyer can comfortably handle the mortgage, and if their offer is accepted, they may not fall out of escrow,” says Chantay Bridges, of EXP Realty in Los Angeles. “The last thing a seller wants is to begin with a buyer and later discover that their pre-approval never turned into an approval [and] they are unable to buy the home.”


Good credit translates into more loan products for home buyers to choose from, says Mark Meyerdirk, principal broker at Urban Brokers. And when home sellers have countless offers to choose from, their agents will often prioritize potential buyers by financial strength, by taking the buyer’s financing type into account.


“Putting cash offers aside, buyers using conventional financing are preferred to FHA or VA loans,” says Meyerdirk. “So, a buyer who has the ability to ‘go conventional’ has a better chance of success when competing with other buyers.”



Improving the homebuilding process: how technology can make the process easier 


Some things in life are so complicated that it’s easier to say, “Screw it — I’m not going to do this at all.” That’s what building a new home is like for most people. The process is so fraught with complexity that it can be more attractive to find a move-in ready house, even if it doesn’t check all the boxes.



But, even then, today’s homebuyers aren’t spoiled for choice, according to HousingWire. While mortgage rates are at an all-time low, people looking to buy their first home — particularly millennials, who accounted for half of all new home loans in 2019 — have a limited and aging stock of houses to choose from. And for those who still want to build a home from scratch, rising construction costs, limited lot sizes, and excessive red tape can make the process seem insurmountable.


Considering how much construction technology, materials, and techniques have evolved, building a new home should be far simpler than it is. There are too many obstacles along the way that don’t need to exist. And in the midst of the biggest single-family housing boom since the early 2000s, that’s a problem too urgent to ignore.


Across industries, we should always be thinking about how we can harness human expertise more creatively, intelligently, and efficiently. The more we can use technology instead of people in the build context, the more we can do in the same amount of time.

Creating transparency

With so many moving parts involved in new home construction, financing can be one of the most opaque and confusing steps. Built Technologies in Nashville is one company that has created a suite of software to simplify loans, draws, and inspections for lenders and contractors. The entire workflow, including capital providers, contractors, and suppliers, can be managed online or through a familiar and accessible mobile app experience.


Automating for efficiency

Plenty of tasks in home construction require human eyes and hands. But, in other areas, machines are already proving to be better, faster and safer. Using new and automated technology in construction is the natural next step to making smarter decisions on and off site, from planning and designing to sourcing materials and scheduling workers.


Bringing more services under one roof

Block Renovations is a great example of a company using technology to make a multi-step process more efficient for contractors and more satisfying for customers. Block’s user-friendly platform keeps customers’ scope of work, documents, progress photos and communications in one place, and features a materials library that lets people visualize the entire project before it starts. The company also matches each project with a vetted list of project planners, designers, and licensed and insured contractors, all of whom customers can connect with online.


The shortage of single-family housing in the U.S. is a problem that’s not going away anytime soon. The current surge in demand for suburban housing may have been accelerated by the pandemic, but the trend of people moving out of cities to the suburbs is nothing new. Except this time around, our audience is the most digitally savvy group of homebuyers to date.



Weekly Mortgage Rate Update

Since the most recent peak in April, mortgage rates have declined nearly a quarter of a percent and have remained under three percent for the past month. 

Low rates offer homeowners an opportunity to lower their monthly payment by refinancing. Freddie Mac’s most recent research shows that many borrowers, especially Black and Hispanic borrowers, who could benefit from refinancing still aren’t pursuing the option. 

Additionally, the low mortgage rate environment may not last long, as consumer inflation has accelerated at its fastest pace in more than twelve years and could lead to higher mortgage rates in the summer.

The Freddie Mac weekly survey shows the average rate for a 30-year fixed mortgage is 2.94%, which is 0.02 points lower than last week, and down 0.34 points from this time last year.

About the Author:

Chloe McMullen

Chloe is a Marketing Copywriter at Movement Mortgage. When she’s not tending to (or adding to) her houseplant collection, Chloe can be found in a saddle, competing in equestrian events.