Housing & Mortgage
As Others Flee Cities, Are You Hoping to Buy a Home Cheaply?
Good timing – and financial preparation – will be crucial
It’s far from certain, amid rising COVID health concerns and a new freedom to work remotely, that substantial numbers of Americans really are abandoning major cities. As my colleague Arianne Cohen notes, evidence of the “exodus” is mostly anecdotal thus far:
But if we take people at their word that they plan to move, and if employers don’t whiplash us all by demanding an all-hands return to the cubicle, a significant opportunity could present itself for big-city renters not planning to leave who’ve long wanted to buy a home. The departure of a meaningful number of neighbors could produce at least a short-term drop in home prices. A buying opportunity for city-stickers.
Upwork, a firm that connects freelancers with employers, analyzed data from a survey of more than 20,000 people in October. It estimates overall migration around the country could be two to four times the long-term norm, as permanent remote work is more broadly embraced by employers. Upwork expects out-migration from big cities to account for one in five moves.
Upwork found that many people considering making a move aren’t just aiming for the nearest suburb; more than four in 10 potential movers are looking to uproot to somewhere at least four hours from where they are now, and another 13% are eyeing a move that is two to four hours from their current home. Those would seem to be city-leavers, not super-commuters.
So, if you’re a city-sticker hoping to buy, here’s some guidance for getting ready:
You may end up competing with property flippers – they show up anyplace where it seems bargains lurk. But thinking like a flipper could hurt you, as there’s no guarantee that a lower-priced urban home will snap back quickly to its former lofty value. Bottom line: Flipping is for risk-takers. Buying into a volatile market is for those with sturdy finances and an expectation of staying put a while.
The interest-rate gods are working in your favor. The most recent forecast from the Mortgage Bankers Association expects the current 3.0% average fixed rate for a 30-year mortgage to rise to no more than 3.3% by year-end 2021, and 3.6% by year-end 2022. The technical term for those rates: cheap. Just a year ago, the average rate was around 3.8% and in November 2018 the average rate was 4.75%. So, rates aren’t rushing you.
Calling the bottom of prices will be impossible, as with stocks or any dynamic market. If you’re buying to stay for the long-term, and feel comfortable with the general economic condition of your city, decide on a price range you’re good with and buy knowing that values could decline even more. Or if that’s too scary, you’ll have to wait for a clear bottoming out of prices and buy as they’re rising again, which itself is tricky.
Know the rules for condos and co-ops in your city. The mortgage qualifying rules may be different than for single-family homes. It’s not just your finances that lenders are examining — they also need to be assured the building’s finances are solid.
Familiarize yourself with the market. If you’re among those who haven’t been spending hours looking at home listings, now’s a good time to start. And also to venture out — with masks and all due caution — to evaluate neighborhoods and particular streets and homes as a potential place you’d live, not just one you’d visit for a meal out.
Gut-check your plans. If you’re a long-term renter and accustomed to that relative lesser commitment, and if it’s been a while since you (and perhaps you and your partner) really thought hard about where you live, my colleague Dee Gill’s three-part series on happiness (the people, the places, the financial security) and housing will help: https://www.rate.com/research/news/moving-happiness-financial-security
Review your finances. Even if you end up abandoning the home purchase plan, this can be a great tune-up of your money situation. Paying off debts is crucial and often requires a change in your spending habits.
Learn early about your credit score. You’re aiming to hit 750 minimum on your FICO.
Down payment requirements vary by lender, type of loan and location. Learn all about saving for the right-sized down payment.