Why buying real estate may be a bad deal for you amid the pandemic

House for sale
A backyard may seem like a great get amid the coronavirus pandemic, but buying a home may not be as great a deal as you think.
  • Buying a house amid the coronavirus pandemic might seem like a good idea, especially with mortgage rates historically low, but evidence that is piling up is making it look like a bad deal.
  • A LendEDU survey in late August found that 55% of those who became homeowners amid the pandemic already regret the decision, mostly due to financial reasons.
  • Redfin found that as of the end of July, lower mortgage rates had given buyers an extra 6.9% in purchase power, but house prices were up 8.2% year-over-year.
  • Meanwhile, the Mortgage Bankers Association just said that mortgage availability plummeted last month, meaning it's going to be harder and harder to get one moving forward.
  • Visit Business Insider's homepage for more stories.

Surprisingly low mortgage rates, the ability to work from anywhere, and the desire for one's own backyard are unique aspects of the coronavirus pandemic that have inspired many to buy a house. Mortgage applications are up 22% compared to last year, showing that demand is immense.

But if you're keen on submitting your own application, you might want to reconsider.

The US is facing a housing shortage that only ratchets home prices up, according to a new Redfin analysis. Meanwhile, a new LendEDU survey found that those who decided to become pandemic homeowners are already expressing buyer's remorse.

The number of homes for sale in the country was down for the 12th straight month in July. Just 1.9 million homes were on the market in July, according to Redfin.

The housing deficit, which already existed due to what Redfin called a "homebuilding slowdown" following the Great Recession, has only been exacerbated by the pandemic. Many are fleeing coastal capitals and looking to relocate to more affordable metro areas while taking advantage of all-time low mortgage rates.

Take Baltimore and San Antonio, for example. Both are notably more affordable housing markets — but their housing supply has plummeted 20% year-over-year amid the pandemic. Meanwhile, the supply in expensive cities like New York and San Francisco has surged, while demand has dwindled.

In Baltimore, buyers outnumbering sellers has contributed to elevated home prices. "Buyers are willing to pay more for a house than I've ever seen — I'm talking $30,000 to $50,000 over the listing price," Dan Borowy, a Baltimore real estate agent, told Redfin. "They're desperate because homes are flying off the market so quickly. I'm selling all of the homes I'm listing within three days."

Snagging a low-rate mortgage to finance that purchase, however, is also hard these days. The Mortgage Bankers Association released a report on Thursday that said lenders are tightening standards due to the coronavirus recession. Mortgage availability, according to the association, plummeted so far in August that it hasn't been this hard to take out a mortgage since 2014.

And another study shows that those new homeowners who were able to secure a mortgage almost immediately experienced buyer's remorse.

LendEDU surveyed 1,000 homeowners with a mortgage in late August. More than half of respondents — a whopping 55% — reported that they regret taking out a mortgage amid the pandemic.

Roughly 30% of those with regrets cited financial struggles. Even with low interest rates, payments become more difficult to manage as the pandemic continues to sink the country into a recession.

Another 10% said social reasons fueled their regret, while 7% reported that they were not prepared for homeownership, and 8% reported another miscellaneous reason.

This may be down to the dynamics of the market. Redfin calculated that as of the end of July, the lower mortgage rates have given buyers an extra 6.9% in purchasing power, but prices were up 8.2% year-over-year, wiping that out.

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