Rene Gonzalez, 28, is remaining hopeful of becoming a first-time homeowner in the midst of a pandemic. He and his family have been shopping for two months and seen 10 homes, including three they fell in love with.
But for each of those they loved, they put forward their best offer only to be outbid.
"There was one week I just needed to take a break and not think about the home-buying process or look at houses online," he said.
Their experience is common for shoppers in today's housing market. While the pandemic continues to threaten businesses and employment, the Fresno housing market is booming with record-breaking low interest rates between 2.5% and 3.25%, according to Ernesto Padilla, mortgage broker with SNAP! Home Loans.
Are we headed for a housing crash?
For those who lived through the 2008 housing market crash, or grew up hearing the stories, it can be unsettling to decide if now is a good time to jump in and buy.
There are dozens of recent videos and articles, such as Forbes' "Where Does The U.S. Housing Market Go From Here?" where experts offer predictions on whether or not there will be a 2020 housing crash and if so, when will it bounce back.
According to WealthSimple, a financial advising company, the 2008 crash was due to predatory lending and relaxed rules that gave mortgage loans to people who could not afford them.
"That hurt the economy," Padilla said. "What's happening right now in the economy is not directly linked to the housing market."
Annette De Dios, Realtor at Brown and Brown Real Estate in Fresno, said it's common for her buyers to be worried about the stability of the market during these times.
"Protections and laws were put in place to prevent another crash like '08," De Dios said. "The guidelines for getting a loan are stricter, so it doesn't mean there aren't any risks, but it'll be very difficult for the market to crash the same way it did in the past."
Can I go see a house in-person?
One of the bigger changes Realtors and buyers have had to adapt to are the regulations around viewing homes during the COVID-19 pandemic. Before visiting a home, the Realtor and buyer(s) must sign a disclaimer that requires social distancing practices during viewing — wearing a mask and gloves, and keeping six feet distance from other parties present. Some properties require shoe coverings.
This process has eliminated open houses and instead requires a scheduled appointment for the potential buyers to see a home. Hand sanitizers are placed at the entrances and throughout the houses. Homes that are still occupied pose a greater risk to the occupants and buyers as the latter are exposed to furniture and personal belongings inside the house.
The disclaimer also limits home viewings to two people, not including the Realtor, which can be an inconvenience to bigger families or those with small children who need to be left behind at every appointment.
For some homes, 3D and virtual tours are encouraged. These provide a high-quality and user-friendly interface that buyers can navigate from their screen at home.
"Personally, I don't think it's the same to see a home through a screen," Padilla said. "It's important to soak in the layout in person and see if it feels like home."
Padilla also warns that the photos on listings can be deceiving, depending on the type of camera and lens used to take the pictures.
How long will interest rates stay this low?
Padilla said he believes the low interest rates could remain down for up to a year and could even drop more because it's a way for banks to stimulate the current economy by offering attractive loans to qualified buyers. The average California mortgage interest rate in 2008 — the start of the crash when everyone was buying — was 6%. Today's rates are roughly half of that.
"Housing creates jobs for construction workers and plumbers, which then brings people to the area," Padilla said. "Then that brings businesses, restaurants, and schools, so it's in the government's interest to keep the housing market like this for a while."
Today's market is considered a seller's market because there are few homes and many buyers. This means sellers hold all the negotiation power.
"We are seeing bidding wars," said Padilla.
The low rates are allowing buyers to afford a higher-priced home, which usually means a better-quality home, than they would have otherwise afforded. For example, according to Zillow's mortgage calculator, if a buyer has a budget of $1,500 for a monthly mortgage payment, they could be approved for up to $350,000 and still stay within that budget, with today's interest rate, compared to staying at or below $280,000, with an interest rate of 6.03% — like it was in 2008.
Being approved for a higher mortgage loan also allows the buyer an extra cushion to make an offer higher than the listing price of the home, which is a common practice in today's market.
De Dios said she has seen up to 19 offers on one home. This means only the most competitive offers even make it to the final rounds of consideration. In the past, a busy market in Fresno meant roughly five offers on one home.
According to De Dios, to be considered strong in today's market, a buyer should: offer the asking price or above; be willing to cover all the closing costs; stay flexible with escrow time for those sellers who are also looking for a replacement home; offer to pay more than the appraised value of the home; and include a personal heartfelt letter that includes the background on the buyer and why they like the property.
"Time is not on the buyer's side. You can't go see a home and wait to think if you want to put in an offer," De Dios said.
Out-of-town, cash buyers add to competition
The lack of housing is not a new phenomenon in California and is the main reason why the market is swarming with buyers and not enough homes.
According to Movoto Real Estate, the number of available homes in Fresno County is 53% lower today compared to this time last year. As of Aug. 18, there were a total of 402 active homes for sale in comparison to 862 homes listed in mid-August of 2019.
Even with an inflation in housing prices, Padilla and De Dios say they have both seen an increase in interest from out-of-town and cash buyers. Padilla said this is because Fresno is still one of the more affordable markets compared to the rest of the state. In Fresno, the median home value is $258,502 with a rent of $1,395, while the average price across California is $578,267 with a median mortgage of $2,775, according to Zillow.
Padilla said the pandemic has caused employment sectors to take advantage of working remotely. This has opened up the opportunity for those buyers to potentially live anywhere while maintaining the same salary. These out-of-town incomes have a bigger stretch in Fresno's affordable living than they would in cities in the Bay Area and Los Angeles.
Bidding wars in Fresno
Fresno records show that a two-bedroom, one-bathroom home in the 93706 ZIP code was recently listed for $139,000 and was sold for $155,000 — a $16,000 up-sale. A three-bedroom and two-bathroom home in 93702 was listed for $299,000 and sold for $309,000 — a $10,000 up-sale, with the buyer getting $3,000 toward closing costs. De Dios said she saw a home sell for $30,000 over asking price.
"(Houses) under $300,000 is where I'm experiencing over 10 offers and in some cases over 20-plus offers," De Dios said.
Luz Lopez, Realtor with Chappell Real Estate in Fresno, warns mortgage borrowers about the risks of overbidding. She said cash buyers have the largest advantage in being able to competitively overbid because they do not need to stay within the bank's appraisal range.
"If you offer more than what the bank appraises the home for, you have to pay the difference up front, renegotiate the price with the seller, or walk away," she said.
Marisol Espinoza, Fresno mortgage broker with Western Pioneer Financial, said there are several reasons why home inventory is low during the pandemic. One is because sellers may have tenants in their homes who are protected by local and state moratoriums against evictions. With those protections just starting to lift, Espinoza anticipates more homes will begin to hit the market.
Another reason for the low inventory is that sellers who have experienced loss of income and jobs have been cornered into deferment or forbearance until they are forced to sell.
"Some sellers are just not interested in selling right now because they're still sheltering in place and don't want people in their home," Espinoza said.
What's the future of the housing market?
Zillow rates California's housing market as a "warm" seller's market and Fresno as a "very hot" seller's market. Whether it's a good time or not to buy during the state of emergency depends on various factors.
Padilla and Lopez suggest clients look at their personal situation before deciding to jump into the market. Padilla encourages buyers to mainly consider their employment and income stability, especially during the pandemic.
De Dios wants her potential clients to know they will be navigating in "uncharted territory," because the market hasn't seen anything like what's happening now.
"We don't have a crystal ball," De Dios said. "We don't know what's going to happen."
"Buy when you are financially able to and when you find a home you really like," said Lopez. "Don't wait for a so-called market crash."
