The Impact of the Pandemic on Home Buying and Pricing

Given the current global health crisis, several uncertainties surround the real estate market, particularly for those at the beginning stages of purchasing a home. In this article, we will explore how the coronavirus pandemic affects home buying, the associated risks, and the potential influence on home prices.

Current Trends and Market Sentiment

Even with record-low interest rates, the real estate market in many regions, including in my country, remains subdued. The primary concern is the economic impact of the pandemic, which has led to higher unemployment and reduced purchasing power. Consequently, home prices are currently witnessing a decline as buyers become more cautious and sales volumes drop.

It is crucial to understand that these fluctuations in prices predominantly affect the immediate sellers and buyers. The underlying economic fundamentals and long-term trends will eventually dictate the price movement once the market stabilizes. Given that governments are flooding the economy with more money than usual, it is likely that when the economy picks up, home prices will also rise again.

Key Players in the Transaction

In a real estate transaction, the crucial players are the buyer, the seller, their respective real estate agents, the title company or lawyer, and the lender (if required). In this volatile scenario, the lender or bank holds a significant advantage. They have strict criteria for lending and may deny a loan if they feel the borrower's financial situation is unstable. Therefore, the lender is the more prudent party and will assess every loan carefully until the market returns to a state of normalcy.

Buyers also have options. If they discover any pertinent information that changes their decision, they can notify the title company or lawyer and cancel the transaction. However, this could result in fines from the seller if the buyer has removed contingencies.

Risk Management and Contingencies

When purchasing a home, the buyer typically deposits a portion of the purchase price, known as a deposit. In California, this is usually 5% of the purchase price. If the buyer fails to fulfill their obligations under the contract, they can lose this deposit. During the pandemic, this is an especially important consideration as the buyer must weigh the potential risks against the current market conditions.

For instance, if a buyer contracts the virus and anticipates a significant recovery period, this will affect their ability to perform due diligence and close the transaction. In such a scenario, the demand for the home may drop, leading to a slight reduction in the home's price. However, the contract remains in force, and the buyer is still responsible for the deposit, though the seller may offer some flexibility depending on the situation.

Market Recovery and Future Prospects

In the long term, the real estate market is resilient, and the impact of the pandemic will be temporary. Seven months into the pandemic, we can already start to see signs of recovery. As economies open up and more people return to work, the demand for housing will likely increase, and home prices will stabilize.

While it is difficult to predict the exact timeline for these changes, it is essential to stay informed and prepared. Understanding the nuances of the current market and the backing of the lender can provide a strong foundation for making informed decisions about home purchases during this unprecedented time.