While it is easier and more attractive to buy a home now than it has been in a long time, those looking to purchase a house should know what to expect in the coming year. 2016 is expected to be a great year for the real estate industry, but that is not to say there won’t be challenges. The real key is understanding what to expect, and meeting the challenges head on. Having said that, what challenges can buyers expect to be confronted with, and how can they be overcome?
Qualifying for a home loan has become a lot easier since the recovery gained traction. It’s now possible to find home loans with credit scores in the low 600 range, and still put down just 3.5 percent. There are also more loan options for the self-employed, and real estate investors. According to forecasts, over seven million returning homebuyers are set to qualify for loans. That’s in addition to all the new millennial first-time homebuyers, move up buyers, and boomers who are downsizing.
Low interest rates are making it very inexpensive to own a home versus renting. With the historic and projected trajectory of rental rates, it certainly makes it more appealing and affordable for a sizable percentage of the population to buy a home now. This is on top of the fact that landlords are becoming more stringent than actually applying for a loan in the first place. So why aren’t more of these qualified homebuyers moving to purchase?
Many hopeful homeowners are finding it difficult to find a home they actually want. Truth be told, inventory is still tight. They have obtained mortgage pre-approvals, can muster some form of down payment, and are eager to buy, but fall flat when finding a home. If you make $70,000 a year, yet want to keep your housing costs affordable, it can be a real challenge to find something that looks decent and can house a family. While most may be willing to do some home improvements over time, most regular buyers know that this can require large sums of cash they don’t have, and there can be a lot of complexities which can make it even more challenging. What’s worse, the stock of inventory in many hot markets is being dominated by small units. How do you squeeze a family with three kids and a work at home parent into a studio, one bedroom, or 1,000 square foot two-bedroom? Of course it is possible, and many will have no choice, but the rapid price rises we’ve seen over the last couple of years is creating too big of a hurdle.
Sellers, in particular condo associations, appear to have become increasingly difficult to work with. Some condominiums now require background checks, and even reportedly demand buyers put down at least a 20 percent. While this may appear to be a way for condo associations to preserve their position and make seizing units in default more attractive, it rules them out as an option for FHA loan borrowers, and potentially those with minor bumps in their backgrounds. It may also be counterproductive for these condo owners. The limitation on who can be sold to could halt sales in the future, and actually bring down unit values sharply.
It’s great that Realtors are so busy today. Unfortunately, some are clearly too busy. They keep pumping out listings and ads, without being able to reply to buyers. Many buyers are just getting burned out on trying to inquire about properties without getting service. It’s becoming too much hassle to buy. Fortunately, there are a handful of very aggressive agents who are eager to stay on top and follow up. Sadly, they are often those with the least experience, which can cause other hiccups along the path.
Whether you are a Realtor or real estate investor, it is also on you to preserve the industry and your future, as well as the housing market and opportunities for homeownership. That means knowing your stuff, and doing a great job. If you are doing too many deals to answer your own phone, you can afford to hire some help.
As a buyer, recognize the need to get into something while interest rates are low. If you don’t love it as a residence, live there for a year, and then move up. You can sell and cash out a larger down payment, or keep it and lease it out for income to offset a nicer home. Recognize what you can and can’t change about a property. Do not let the quirks and challenges hold you back and keep you down. Buying a home can take some work, but there is big rewards ahead for those willing to make the effort.
