The COVID-19 pandemic has many people taking a closer look at the importance of home.
“Home has become our pulse. It’s where we find comfort and sanctuary, so we want our home to be what and where we want,” said Stephanie Canard, a private wealth banker at BOK Financial.
And while the pandemic has slowed some areas of the economy, the housing market isn’t one of them. A recent report shows that historically low interest rates are driving a boom in house sales and refinancing, while allowing some buyers to upgrade into higher-priced homes.
And with all the time spent at home, others are considering renovations, expansion or new construction. That’s good news for the industry, and for homebuyers, but the market also has gone through some significant changes, including higher-than-average construction costs and new rules for homebuyers.
Feeding the boom
The Mortgage Bankers Association reported in December that the fixed 30-year mortgage slid to 2.9%, an all-time low. This time last year, the rate was 4%.
Experts have speculated that the increased demand is due to geographic flexibility in remote work, and by more people seeking more private space for working from home. The pandemic brought more first-time homebuyers into the market this year, and demand for second homes grew an astounding 100% from 2019.
Along with the demand comes changes in guidelines and procedures for purchasing an existing home, said BOK Financial Mortgage Banker Karen Heston. Some realtors may require financing pre-approval before they’ll show a house, as a way to limit the number of people physically coming through the space.
And most lenders require extra documentation from self-employed individuals seeking mortgage loans.
“Because rates are so low, purchase volumes have blown up,” said Heston. “For example, in nine months of 2020 I nearly doubled what I did in 2019 in terms of purchases and refinances. A house will come on the market and within hours there’s multiple showings and multiple offers.”
Lumber prices soar
In August, the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), which is designed to measure the pulse of the single-family housing market, rose six points from the previous month to 78 in August, marking the highest reading since December 1998.
Due to inflated construction material prices during the pandemic, the cost of home construction also increased.
Lumber prices, for example, have risen to average more than $600 per thousand board feet, representing a nearly 80% increase since April, according to new data from the National Association of Home Builders. The recent jumps in lumber prices will likely add thousands of dollars to the cost of a standard new home, the NAHB says.
A place to call home
Canard and Heston offer a few tips for those considering a new home in 2021:
Make sure you know your budget inside and out. “In new construction, this means knowing wants versus needs. There’s a possibility of over-building and adding amenities that you won’t recoup the cost on—which is important to know going in,” Heston said.
Set realistic expectations. Heston said every profession related to the real estate business is feeling the crunch, so delays are inevitable. From appraisers to title companies, people are working with increased workloads while navigating COVID restrictions.
“This is a very emotional, life-changing decision sometimes, and people get really invested. Sometimes that leads to unrealistic expectations in how quickly these processes move,” Canard said.
Listen and ask questions to your comfort level. “Some people want to be in the driver’s seat, and others want us to take the wheel,” Canard said. “Some people prefer to ask a lot of questions and do a lot of research while others prefer to trust that we’ve done our due diligence.”
If you’re a questioner, don’t be afraid to speak up.
“When it comes to your dream home—it’s not one size fits all,” said Heston. “So, whether you’re building something new or buying something new to you, there are numerous things to consider along the way.”