The Housing Shortage Facing Facing Homebuyers Shopping For A New Home

This Article Is About The Housing Shortage Facing Homebuyers Shopping For A New Home

The housing shortage in the United States has impacted and affected homebuyers. While home sellers enjoyed the multiple offers on their listed homes, many homebuyers were affected by facing multiple offers on the same property. There is not a homebuyer who did not have been in a bidding war on a property. Most homebuyers needed to bid over the list price in order to get the winning bid. Paying 10% or more over the list price was becoming the norm. The housing market was facing a housing shortage since 2012. However, the historic record-low mortgage rates have escalated the demand for homes for homebuyers.

After the Federal Reserve Board lowered interest rates to zero percent, mortgage rates have tanked to historic record lows. 30-year fixed-rate mortgages have dropped to 2.5% in early 2021 and the 15-year fixed-mortgage rate dropped below 2.0% for prime credit borrowers. Renters who were not planning on buying a home until years later decided to pull the trigger on a home purchase now and take the advantage of today’s historic low rates. Unfortunately, homebuyers were facing a dilemma. The minute a home was listed, there were dozens of buyers interested in placing a bid on the home. Home sellers were selling their homes significantly higher than the list price. Even though homes were not appraising at prices over list prices, homebuyers were getting the money to purchase the home. Lenders will only base the market value of the home on the appraised value of the home and not the purchase price. Therefore, any amount buyers paid over the appraised value, the buyer needs to come up with cash out of pocket.

How The Housing Shortage Is Affecting Homebuyers

Both HUD and the Federal Housing Finance Agency have increased FHA and Conventional loan limits for the past five years due to the skyrocketing home prices. The housing shortage was becoming a crisis throughout the country. Pre-approved homebuyers were seeing home prices skyrocket before their eyes. Some homebuyers were frightened the way home prices were skyrocketing that they were going to get priced out of the housing market. There is no doubt it was a seller’s market and will continue to be a seller’s market for months and years to come. This has driven home prices to record high levels pricing many homebuyers out of the housing market. There were countless pre-approved homebuyers at Gustan Cho Associates who had to wait over a year to get a winning bid on a house during the housing shortage of 2020 and 2021.

How The Housing Boom Affected Homebuyers With Seller Concessions

Due to being a seller’s market with multiple offers on a home, many sellers were not offering any seller concessions on a home purchase. Not getting a seller concession by the seller is a major negative on the homebuyer. Most homebuyers depend on seller concessions to pay their home’s closing costs. The team at Gustan Cho Associates are experts in helping homebuyers during the housing shortage. We can help negotiate with the sellers and/or the seller’s real estate agent on getting the homebuyer a seller concession so they can cover their closing costs. In the event the homebuyer is short to cover closing costs due to not enough seller concessions, the lender can offer a lender credit.

Lender credit only applies to borrowers with higher credit scores. The way a lender credit works is the lender will charge a higher mortgage rate in lieu of giving the borrower a cash credit to cover the closing costs. However, there is a maximum cap on how much a lender can charge on residential government and/or conventional loans. Therefore, borrowers with lower credit scores can only be charged a certain rate so a lender credit may not be available. I know this can get confusing so contact us if you need further explanations on this topic or other mortgage/real estate-related topics at [email protected] and we can go over this concept over the phone in great detail so there are no misunderstandings.

In this article, we will discuss and cover the housing shortage facing homebuyers shopping for a new home. We will also cover how long the housing shortage will last and how it will affect home prices.

Coronavirus Outbreak Created More Demand Of Home During The Housing Shortage

Coronavirus Outbreak and Home During The Housing Shortage

The coronavirus outbreak in February 2020 has changed the business models of many companies. Most companies in the United States have changed their business models to change a significant percentage of their workforces to remote job positions. Remote workers can now live anywhere in the nation. They no longer have to be close to their workplace. A large percentage of America’s workforce is no remote workers. Many remote workers who used to live in states with high home prices such as California and New York can now relocate to lower-taxed states with affordable housing such as Tennessee, Indiana, Georgia, Florida, Texas, Alabama, Ohio, Missouri, North Carolina, South Carolina, Michigan, and other states. Substantial renters and millennials have flooded the home buying market, further adding fuel to the fire on the housing shortage. Gustan Cho Associates has added dozens of new non-QM and alternative mortgage loan products such as non-QM loans one day out of bankruptcy and/or foreclosure which added more renters who could not qualify for traditional mortgages able to qualify.

Multiple Mortgage Programs Outside Government And Conventional Loans

Having alternative mortgage loan programs for homebuyers who could not qualify for traditional mortgages has spiked the housing demand and added more homebuyers in a short housing shortage market. The housing shortage is not as bad as it was in early 2021. However, the housing shortage is continued to continue for the next few years. As more and more renters are planning on becoming homeowners, the demand for housing is expected to outpace the inventory of homes. Since demand outpaces the inventory of homes, this means prices are continuing to increase. Bidding wars are expected to become the new norm. It is perfectly okay for home prices to keep increasing as long as it increases steadily.

Skyrocketing home prices like the double-digit returns we have seen the past few years can be dangerous. If home prices suddenly skyrocket, then there can be a correction. With many city dwellers exiting city life as renters and shopping for single-family homes in the suburbs and the mass conversion of remote workers in the workplace, home prices are expected to increase more so than previously. There were many factors that cause the sudden double-digit increase in home prices in the past few years.

What Factors Are Causing The Housing Shortage

Multiple Mortgage Programs Outside Government And Conventional Loans

The housing shortage the United States has been experiencing for the past several years is due to multiple factors. It started from the 2008 Great Recession and housing meltdown. When the nation was going through the housing meltdown, foreclosure homes were getting purchased by individual and private equity investors in bulks. Home construction came to a halt. Over 200,000 homes were purchased by investors and used as short-term rentals. Home construction came to an abrupt halt until 2012. This is a lag of almost four years where homes were not being built. The home construction industry was idle. There was a lot of catching up with building new homes and catch up with the downtime when home construction sat idle.

There were other factors that escalated the demand for homes beside the shortfall of new homes from 2008 until 2012. The Federal Reserve Board reducing interest rates to zero percent and the coronavirus outbreak in February 2020 were major factors that increased demand for the homes. Some homebuyers put their plans on buying a home on hold after the coronavirus outbreak hoping there may be a housing correction. Nobody has a crystal ball and the housing correction went the other way. Housing prices increased like never before. From all the data and outside factors with low interest rates and the economy, home prices is expected to keep on increasing for the next several years.

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