THE TRIALS OF A 2021 HOMEBUYER

THE TRIALS OF A 2021 HOMEBUYER

A red-hot housing market has forced house hunters to step up their game. Buyers are making bigger down payments, offering above the asking price, waiving more contingencies and going on additional home tours in order to compete during the pandemic.

Many homebuyers are finding that they must tour more homes, cut bigger checks and waive more contingencies in order to win, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. Remote work and low mortgage rates have prompted scores of Americans to buy homes during the pandemic, and this has resulted in a severe housing shortage that’s fueling record-high prices and cutthroat competition.

The median down payment on a home during the last six months was $40,987, up from $32,261 during the same period a year earlier. That’s an increase of 27%, or nearly $9,000. The typical homebuyer made a down payment equal to 15.9% of the sale price, compared with 15.3% a year earlier. Down payments have mostly increased because housing prices have jumped.

“The surge in home prices actually hasn’t resulted in higher monthly mortgage payments for most buyers because it has been offset by low mortgage rates, but it has driven up down-payment costs,” said Redfin Chief Economist Daryl Fairweather. “This is likely putting homeownership out of reach for many cash-strapped firsttime buyers who can’t afford to put an additional $9,000 down.”

BIDDING UP

In addition to spending more on down payments, homebuyers have been boosting their bids. During the last six months, 1 in 3 buyers (34.4%) paid more than the seller’s original asking price, up from 1 in 5 buyers (21.2%) a year earlier.

“It’s extremely competitive out there. One of my buyers recently beat out 25 other bids by offering $120,000 over the $425,000 asking price on a three-bedroom single-family home,” said Portland Redfin real estate agent Mark Peterson. “There was a competing offer for the same amount, but my client won by opting for a shortened inspection period, accepting the home `as-is’ and agreeing to pay up to $20,000 extra in the event that the appraisal came in low.”

BUYERS WAIVING CONTINGENCIES

Over the last six months, 17.6% of successful offers submitted by Redfin agents waived the appraisal contingency, up from just 6.1% during the same period a year earlier. The share of successful offers waiving the inspection contingency jumped to 13.2% from 7.3%, and the portion waiving the financing contingency increased to 13.2% from 10.1%.

With more than half of home offers encountering bidding wars these days, buyers are finding that they need to sweeten their offers and get creative in order to win. Waiving these contingencies is a strategy buyers use to make their offers more competitive by assuring the seller that the deal will close without unforeseen headaches.

MORE CONVENTIONAL LOANS

More than half (53%) of home sales in the last six months were paid for using conventional loans, or loans that are provided by private lenders and not backed by the federal government. That’s up from 49.7% a year earlier. The portion of sales financed with jumbo loans, which are regularly used for purchases of higher-end homes, increased to 6% from 5.5%. Slightly more than a quarter (25.9%) of home purchases were paid for exclusively in cash, little changed from before the pandemic.