At a time when low mortgage rates are making properties more affordable, a shortage of homes for sale is also creating challenges for homebuyers.
It’s been a remarkable homebuying season, as home prices have climbed in a housing market that’s underbuilt by an estimated 3.3 million units. In this environment, buyers need to be able to make a competitive offer when they find a property they like — increasing the importance of mortgage preapprovals.
The average rate on a 30-year, fixed-rate mortgage was 3.18% for the week that ended June 4, up from 3.15% the previous week, according to Freddie Mac. At the same time, the May national median listing price increased 1.6% year-over-year to $330,000, according to Realtor.com.
Tight inventories in the housing market have long been a topic of discussion, but the scale of the issue was brought into focus in March as Fannie Mae reported the U.S. housing market is undersupplied by 3.3 million units following years of underbuilding relative to population growth.
Because of the scarcity of homes for sale, especially at prices that are affordable for first-time buyers, it’s increasingly important to help prospective borrowers understand how being preapproved for a mortgage can make it more likely their purchase offer will be accepted.
In early June, The New York Times reported that some home sellers are making preapproval a condition for in-person home tours — as well as purchase offers. Additionally, they reported that according to National Association of Realtors® Chief Economist Lawrence Yun, sellers “want to show homes by appointment only, and they want offers from serious buyers who have been preapproved for financing … They don’t want casual shoppers.”
In the same article, several real estate agents also said today’s homebuyers may also need to ignore issues, like minor repairs, that would have been subject to negotiation in a less heated housing market.
Unfortunately, the supply of homes is not expected to grow in the year ahead as a May forecast by Realtor.com projected an 11% drop in housing starts during the year. The Realtor.com report also predicts that many current renters in urban areas will seek out small cities and suburbs for homes offering more square footage at a lower cost.
“The experience of being at home for a long period of time has everyone rethinking their priorities,” Realtor.com Chief Economist Danielle Hale said in mid-May. “People are recognizing space is more important, so they’re looking for more affordable areas where they can have more space at the same price.”
To help prepare first-time homebuyers, in particular, for the mortgage process, Arch MI provides a complete toolkit you can use to help set expectations. Called The Roadmap to Homeownership, it includes an in-depth presentation you can use to explain the process, the benefits and the financial implications of homeownership.
It’s relatively easy to share the RtHO presentation as a live webinar using apps like Google SlidesTM, PowerPoint® Online or Facebook Live to individuals or a group of customers who can log on from various locations to see your presentation with audio using most smartphones, tablets or home computers.
RtHO makes it easy to co-brand the presentation with your company’s logo and contact information. Other materials include worksheets and resources to help borrowers prepare for a home purchase and determine an ideal mortgage amount for their budget. With social distancing and self-imposed quarantines in force, homebuyers can use the time at home to review their options, complete the worksheets and emerge better prepared for the biggest financial decision of their lives.
The Insights blog is a forum for exchanging ideas. Send us an email to share how you’ve helped set borrowers’ expectations when it comes to getting a mortgage preapproval and how it’s made a difference.