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Budgeting & saving

3 ways the pandemic is changing homebuying

Young family unpacking their things in their new home
Close up of a young family unpacking their things in their new home
Marko Geber/Getty Images

During the past year, we’ve all been hunkering down at home—leaving us ample time to think about whether our living spaces still make sense amid rapidly changing life and workstyles. Many have decided to move on, fueling what could be considered the largest homebuying boom since 2003–2004.

Both new and current homeowners are contributing to the continued increase in home sales this year, with experienced buyers leading the charge. How long will it last? Experts see some of these market changes as temporary, while others may be here to stay.

In this article, we examine three major pandemic-fueled trends worth considering as you make your home buying choice.

Trend 1: Home prices are rising

The National Association of Realtors reported that the median price of existing homes for sale was $353,900 in November 2021—a 13.9% increase from November 2020’s median price tag. What’s behind this spike?

Low mortgage rates mean increased demand for homes

After hitting a fifty-year low in 2020, mortgage rates for a 30-year fixed-rate are now hovering at about 3.93%. The primary driver is the Federal Reserve’s holding down of prime lending rates in a sluggish COVID-19 economy. More attractive interest rates inspire many homeowners to think twice about the possibility of moving, so they can buy more house for less money.

Fewer available properties spur bidding wars

The National Association of Realtors estimates the current market inventory at 1.8 months. In theory, this means that if no additional properties came on the market, it would take less than two months to exhaust the housing supply. This is significantly lower than the typical three- to six-month range.

There’s more competition, even for properties previously considered average or sub-par. Homes that might have sat on the market for months are now launching auction-like bidding activity, with amounts exceeding the asking price. Suddenly, you may find yourself in a bidding war for that fixer-upper adjacent to a six-lane highway you would have never considered a few years ago.

Such heat-of-the-moment victories can turn into losses, even if you love the house on which you outbid your competition. The most critical peril: The property you are purchasing appraises for less than you’ve agreed to pay. This leaves you with a few options: try to negotiate with the buyer, make a larger down payment or walk away from the deal.

Older owners are aging in place and further reducing inventory

For the past several years, more retirees have chosen to age in place, staying in the homes they’ve lived in for years, rather than moving to retirement or assisted-living communities. In fact, 90% of those over 65 see themselves staying in their homes for the next five to 10 years. For many of them, the pandemic has only underscored their preference to enjoy the built-in social distancing of their homes.

The result: About four out of 10 Americans over 55 years old live in three-bedroom homes—further reducing market supply even as demand rises. In fact, a Freddie Mac report found that as many as 1.6 million homes fit this category.

New-home construction faces continued challenges

Supply-chain issues from raw materials to appliances and furniture, including a lumber shortage, made it harder for builders to meet housing demands during the pandemic, resulting in higher prices. In November 2021, for example, the National Association of Home Builders (NAHB) reported that the average price of a new home rose $35,872 in 12 months. And housing starts (the number of new residential construction projects that begin during any particular month) rose to 1.595 million in 2021, up 15.6% from 2020. It is expected that the supply shortages will continue to hamper new-home supply into 2022.

Families now working and relaxing together want more work and leisure space

Real estate analysts at Redfin cite a need for more space as the primary reason for home sales during the pandemic. Many Americans have transitioned to working from home, with no end in sight. After carving out spaces in their kitchens, living rooms and bedrooms, home-based employees may now want a room of their own going forward.

Likewise, additional leisure space may be another wish-list item, thanks to the pandemic. Many homeowners have taken up new hobbies, grown accustomed to watching movies at home and entertaining smaller “pods” of friends and family—and want more space to enjoy these activities.

The pandemic has accelerated multi-generational living trends

Whether it’s parents living with their adult children or young adults returning home, the COVID-19 pandemic has brought multiple generations together in spaces that may not be able to accommodate them, even though they enjoy other aspects of the living arrangement. As home designers continue to create multi-generational home designs, buying a larger home is the more immediate solution.

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Trend 2: People are shopping for and buying homes in new ways

Open houses and seasonal trends have been upended, and some of the changes actually make the home buying process faster and easier.

Virtual home tours instead of in-person visits

Home sellers are reluctant to have people touring their homes, and buyers are equally unwilling to venture indoors. Enter video and virtual reality tours.

These on-screen or immersive virtual reality (VR) experiences can cut hours or even days off your home search. But while shopping with a touchpad may increase the range of homes you can see in an afternoon; you may also have to consult Google Earth to see if there’s a junkyard next to that bargain-priced mini-mansion. Or better yet, get a drone on the case (local restrictions permitting).

Digital documentation is streamlining the purchasing process

Anyone who’s ever bought a house can tell you about the endless document signing and initialing, from application to closing. But what if you e-sign those papers and have them all notarized from your desk? These already-emerging technologies have been adopted enthusiastically during the pandemic—and their convenience may keep them popular long after the COVID-19 threat subsides.

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Trend 3: Qualifying for a mortgage may be more complex than before

Lenders have already been more vigilant about vetting buyers and properties after the Great Recession of 2008. And today’s erratic labor market for industries impacted by the pandemic has changed documentation requirements and standards.

As a result, qualifying for a mortgage may be different than before the pandemic. Keep these factors in mind as you prepare your finances for a mortgage application:

Credit standards are rising

Many lenders are looking for higher credit scores—at least in the 700s. Since scores change rapidly, it’s a great idea to check yours regularly. Late payments, using more than 40% of your total credit line, relatively short credit history and bankruptcies are all credit issues you can address with a debt counselor.

Lenders have tightened debt-to-income requirements since the 2008 recession

The use of debt-to-income ratios has become more consistent, as lenders want to ensure that borrowers have the ability to repay their mortgages.

A lender is going to base its approval of your application on your income, debt, credit and assets. However, your lender may not know the details of your current lifestyle and spending habits. So, it’s up to you to decide if you want to forego the lake house every summer or your new car purchase every two years. Without a plan, it’s easy to become “house poor” and unable to enjoy a balanced financial life.

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Get professional guidance

The many challenges of COVID-19 have spurred some welcome changes in the homebuying process. What hasn’t changed are the personal financial criteria you need to consider before making a major purchase. Use Thrivent’s Balanced Homebuying Calculator to help you decide how much home you can afford comfortably. That way, you can stay on track with your saving, giving and spending plans.

Want to know more about working a home purchase into your financial strategy? Connect with a Thrivent Credit Union mortgage lender about your financing options, member benefits and home buying resources. You can also connect with a Thrivent financial advisor to review how buying a home fits into your overall financial strategy.

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Deposit and lending services are offered by Thrivent Credit Union, the marketing name for Thrivent Federal Credit Union, a member-owned not-for-profit financial cooperative that is federally insured by the National Credit Union Administration and doing business in accordance with the Federal Fair Lending Laws. Insurance, securities, investment advisory and trust and investment management accounts and services offered by Thrivent, the marketing name for Thrivent Financial for Lutherans, or its affiliates are not deposits or obligations of Thrivent Federal Credit Union, are not guaranteed by Thrivent Federal Credit Union or any bank, are not insured by the NCUA, FDIC or any other federal government agency, and involve investment risk, including possible loss of the principal amount invested. Must qualify for membership in TCU. TCU’s NMLS ID 1012971
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