Editor’s Note: This blog was originally published in March 2021 and has been revised to reflect industry statistics, trends, and updates.
With the spring housing market typically the busiest time of the year for buyers and sellers, 2022 is no different. Pent-up demand, low inventory, bidding wars, and new remote work needs are contributing to a record-breaking spring buying season in an already competitive market. Sellers are also receiving multiple, higher offers with fewer contingencies, whereby homes are quickly under contract within an average of 19 days.
In addition to the lowest real estate inventories since January 1999, other demands stem from Millennial homeownership. According to the National Association of Realtors (NAR) ‘2022 Home Buyer and Seller Generational Trends’ report, this group now comprises 43 percent of current buyers.
Previously, new construction projects could often fill real estate listing gaps, but this hasn’t been the case due to current supply chain shortages, municipal zoning delays, and other restrictions. However, according to March 2022 data from the U.S. Census Bureau and Mortgage Bankers Association, this is expected to pick up again in 2023—with 1.79 million housing starts expected compared to 1.6 million last year.
When looking for a new home, it’s best to be organized and have your documents and commitment letters ready for a streamlined process—from opening bid to closing day!
Learn how to effectively navigate the 2022 spring real estate market by understanding current market conditions, mortgage options, financing and credit measures, and more.
2022 Spring Real Estate Market Conditions
Traditionally one of the busiest times of the year to look for a home, the spring real estate market is noisier than ever. Current market conditions, demand outweighing supply, and changing professional and personal lifestyles are all contributing factors.
According to the NAR, while home prices have increased steadily since 2020, relief could be on the horizon later this year.
“Prices throughout the country have surged for the better part of two years, including in the first quarter of 2022," NAR Chief Economist Lawrence Yun states in the group’s first quarter 2022 report. "Given the extremely low inventory, we're unlikely to see price declines, but appreciation should slow in the coming months.”
Other factors include previous apprehension during the height of the COVID-19 pandemic. With mandatory health and safety restrictions now in place and the reliability of virtual tours, livestream open houses, and videoconferencing tools, buyers are more at ease with the home search process.
These will continue to improve, especially as realtors and sellers follow preventative measures and social-distancing guidelines.
Have Your Mortgage Commitment Letter Ready to Go
A pre-approval or pre-qualification letter was previously the norm at an open house or listing appointment, separating so-called “lookie-loos” from serious buyers. With stronger competition, more potential buyers and less available inventory, it’s almost a necessity to have a mortgage commitment letter.
Issued by an approved mortgage lender, this document is prepared by an underwriter subsequent to the thorough evaluation and acceptance of a borrower’s pre-approval application. Outlining details such as loan type, funding amount, and other requirements, it demonstrates official good faith you've been pre-approved for a mortgage loan.
While a pre-approval is also acceptable, a commitment letter offers the highest proof of funds, eligibility, and readiness.
Research Financing Options & Check Your Credit Rating
Organized financials demonstrate you’re a serious buyer ready to make an offer. Having updated documentation, such as recent credit reports, bank statements, and pay stubs, helps mortgage lenders determine what you can afford. Additional tax information, such as W-2 statements and previous income tax returns, can also be helpful in setting loan terms and limits.
Credit rating requirements can also vary by loan type. Borrowers with less-than-satisfactory scores and other limitations could be exempt from specific requirements if they qualify for a government-backed loan. You can also leverage your current standing by making additional payments, consolidating credit, and negotiating lower interest rates.
When obtaining financing, consider the following qualifications and requirements. If you don’t meet at least one of these criteria, you might want to rethink your home-buying strategy, or explore alternative options:
- Little to No “Bad Debt,” Such as Personal Loans & Credit Cards
- Savings to Cover at Least Three to Six Months of Household Expenses
- Debt-to-Income (DTI) Ratio of 25 Percent or Less
- A Down Payment of at Least 10 Percent
- Available Funds to Cover Closing Costs
Examine Current Mortgage Options
If your current financial standing is less than stellar, that doesn’t necessarily take you out of the homeownership realm. Additional options offered through less-stringent, government-backed loans can help home buyers, especially first-timers, gain an edge over others when submitting an offer.
Insured and subsidized by federal agencies, the most common government-backed loans are offered through the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA), and Veterans Affairs (VA)—for active and retired U.S. military personnel.
While each has its own set of requirements, they all help foster homeownership for those who might not otherwise have access. Benefits include low or no down payments, reduced closing costs, and lower credit and debt-to-income ratios.
Traditionally one of the busiest times of the year to look for a home, the spring real estate market is noisier than ever. Current market conditions, demand outweighing supply, and changing professional and personal lifestyles are all contributing factors.
Consult Real Estate & Mortgage Industry Professionals
IIt's important to work with industry professionals who have your best interests in mind. This begins with a reputable mortgage lender that can guide you in the right direction. Many mortgage lenders also have long-term, trusted relationships with others who can assist in your process, such as local real estate agents, attorneys, title companies, appraisers, and more. It’s also helpful to consult the NAR directory in your local area for additional information.
Consider a Fixer-Upper or Rehab Property
IIf your offers consistently fall short on a new construction or conventional home, consider a fixer-upper or rehab property. You can truly make the home your own, while gaining additional equity and other attractive, value-add features.
An FHA 203(k) home improvement loan is the best option for qualified borrowers. Based on the home’s anticipated value after project completion—with a minimum of $5,000—it covers up to $625,000 of the purchase, accompanying improvements, and upgrades.
Borrowers with healthy credit scores can also qualify for lower down payments and other benefits.
Working Together
When navigating the competitive spring real estate market, it’s best to consult a reputable mortgage lender for additional guidance, support, and assistance.
Contour Mortgage provides lending services throughout the United States. Contact us for a free consultation and to learn how we can help you achieve the best financing for your dream home.
