3 Ways the Pandemic Is Changing Homebuying in 2021

In this article, you’ll learn why:

• Home prices are increasing.
• New ways to shop for a home are becoming popular.
• Qualifying for a mortgage may be tougher than before.

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 work styles. 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 homebuying choice.

Trend 1: Home prices are rising

The median price of existing homes for sale rose to an all-time high of $334,500 in March 2021—a 17.2% increase from March 2020’s median price tag. What’s behind this spike?

Low mortgage rates mean increased demand for homes

After hitting a fifty-year low late last year, mortgage rates for a 30-year fixed-rate are now hovering at about 3%. 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.

Of course, increased market activity also means higher prices. Though market watchers saw a slight dip in sales for February 2021 from the previous six months of activity, prices remained 15.8% higher than February 2020. This trend will likely continue, even as the economy improves and interest rates continue to creep upward.

Fewer available properties spur bidding wars

The National Association of Realtors estimates the current market inventory at 1.9 months. In theory, this means that if no additional properties came on the market, it would take 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 in 2019.

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 move 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 2019 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 in 2020, resulting in higher prices. In April, for example, the National Association of Home Builders (NAHB) reported that the average price of a new home rose $24,000 in 12 months. And while the U.S. Commerce Department reported a 37% increase in housing starts compared to March 2020, Fannie Mae expects continued supply shortages to hamper new-home supply throughout 2021.

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. More specifically, recent research predicts that after the pandemic, Americans will be working four times as many hours at home, or about two to three days per week, than they did before COVID-19. 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 multigenerational 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 multigenerational home designs, buying a larger home is the more immediate solution.

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 homebuying 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.

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, a 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 have become more consistent, as lenders want to ensure that borrowers have the ability to repay their mortgage.

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.

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 homebuying resources. You can also connect with a Thrivent financial professional to review how buying a home fits into your overall financial strategy.