No End In Sight

Experts anticipate continued demand in the housing market.

Nearly a year ago shockingly low interest rates were driving homeowners to refinance or purchase new homes at a pace that outstripped lenders’ ability to process the paperwork (see “A Seller’s Market,” BUILD Des Moines, September 2020). The pace might have slowed a bit since then, but the rates haven’t, and local professionals say there’s no end in sight.

“Rates are still below 3% for a 30-year fixed-rate mortgage,” says Bankers Trust’s Kim Downing-Manning. “There really hasn’t been a lot of movement in the past month or two, which is a little unusual.”

GreenState’s Brekken Klomstad says, “The interest rates are just fantastic for both purchase and refinance customers. And they’re forecasting rates to remain this low through the end of the year.”

Because lenders were advising homeowners to refinance last year when rates dropped so significantly, the refinance market is less hectic than the mortgage market this summer. In fact, Downing-Manning says the only thing keeping the mortgage activity from returning to last year’s nearly unmanageable pace is the lack of inventory. “Inventory is so low and there are so many buyers out there, properties get snapped up the minute they’re listed. If there were more inventory, we’d be even busier than we already are.”

The seller’s market that exists right now has made prequalifying an absolute necessity, say both Downing-Manning and Klomstad. “We work hard to educate buyers and ensure they’re prepared when looking for a home,” Klomstad says. “What’s changed is that buyers may not realize they have more wiggle room in their budget than they thought.”

He says that such low interest rates can translate from tens of thousands of dollars more in purchasing power to a minimal difference in monthly payment. “Knowing what a homeowner is comfortable with for a monthly payment is often a better starting point,” he says. “From there, we can give them a more realistic purchase price.”

Downing-Manning says the competitive market has made it important to discuss backup plans with customers as well. “At Bankers Trust we’ve been doing this a long time,” she says, “so there isn’t much we haven’t seen before. That experience allows us to advise our customers on options if they aren’t successful with their first offer. We can walk them through what it’s like in a market like this and help them map out options ahead of time.”

Klomstad agrees. “Preapproval has always been a valuable tool, but that’s even more important now. Not only is the buyer ready when they go out to look at homes, but it saves time later, which is really important when homes are selling as fast as they are right now.”

Downing-Manning says, “In a market like we’re seeing right now, most sellers won’t even look at an offer if the buyer isn’t prequalified. We’ve even provided letters for buyers who were making cash offers to verify that the funds were available so the seller would consider their offer seriously.”

The combination of factors that created the seller’s market we’re experiencing—consumers with money to spend, unbelievably low interest rates, and a shortage of homes on the market—is expected to continue well into the next construction season although the typical seasonal slowdown may provide some respite at the end of the year.

Downing-Manning says one aspect of the home-buying process that is beginning to improve is the verification processes, which will help speed up the prequalification applications.

“Because of COVID restrictions and the strange employment situations so many buyers were in, we had to go through a whole different set of documentation guidelines, especially with employment verifications,” she says. “Things aren’t quite back to prepandemic procedures yet, but it’s getting better.”

Buyers who have those preapprovals in hand are able to shop more confidently in this competitive environment. “Unless there’s an employment change, that prequalification is valid for 120 days,” Klomstad explains. “And if the buyer doesn’t find a home within that time, we simply reverify the credit report, and they’re good for another 120 days.”

With homes selling for well above the asking price, buyers can be inclined to panic or make hasty decisions. Both Klomstad and Downing-Manning say that more than ever their job involves providing their customers with peace of mind.

“I’m a firm believer that everything happens for a reason,” says Downing-Manning. “Buying a home is a huge investment. We don’t want our customers to settle or to make a rash decision. Working with a great REALTOR®, getting the paperwork done ahead of time, and being proactive instead of reactive goes a long way toward accomplishing that.”