Renovated home for sale in Normal Heights. Home prices in San Diego County have been rising since the start of the COVID-19 pandemic.

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House prices in the county have risen by 10.2 per cent since the pandemic began. That makes the home buying process stressful for even the hardest of money savers. Although interest rates are at historic lows – an average of 2.89 percent in September – it is difficult to find many cases where it is cheaper to buy than a year ago.

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A reduction in the number of homes for sale, also cited as the biggest reason for rising prices, means bidding wars that drive up prices, pushing more homebuyers off the market.

The San Diego Union-Tribune spoke with local experts and Zillow about the steps buyers can take to find a home.

Getting financing in order before the price war begins is critical because it helps potential buyers move quickly on a home with multiple offers.

The basic reason is that sellers are often afraid of a sale falling due to financing, so if a buyer has a first season, it can be a more attractive offer if there are many offers.

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There is good reason to think that the sale will go quickly. The average number of days on the market in San Diego County was 14 days in the week ended Oct. 25, data center Redfin said. That compares to 28 at the same time in 2019, 34.5 in 2018 and 24 in 2017.

Real estate agent Dan Beer, of the Beer Home team at eXp Realty in California, said it helps to get approvals from multiple lenders to show how financially secure you are. Another method he recommends is to contact the listing agent to find out which lender they want to work with and trust, and then get their approval.

“As a seller, you don’t tie your asset to anyone who hasn’t proven they have the resources to perform,” Beer said.

He said competing with other buyers on price is part of the answer, but determining who is the most willing and financially sound is sometimes more important to the seller.

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A buyer can get pre-approved for a loan by finding a lender through their real estate agent or by using online recommendations, such as Zillow or Bankrate.com’s lender search tool. Some of the documents you will need: pay stubs showing monthly income, previous address history, employment history, income tax returns, gift letter (if used), bank statement, investment or retirement accounts. Your credit will also be checked.

Not all houses have a competitive bidding process. However, it is worth noting that there are fewer houses for sale today than in previous years. From September 7 to October 4 there were 5,191 homes listed for sale in San Diego County, the Redfin Data Center said. That’s down from 7,949 at the same time in 2019 and 9,341 in 2018.

About 40 percent of buyers with mortgages, and 52 percent of first-time buyers, received loans or gifts from family or friends for a down payment, national data from Zillow shows. He recommends depositing the money into an account first to put it in a pre-approved amount.

While it’s common for a child to ask parents for an extra $5,000 as the deal unfolds, it may be better to sort it out first, said Zillow Senior Economist Jeff Tucker.

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Tucker said an honest conversation with the parents, or a friend, beforehand about how much they are willing to give is also helpful information for the lender. This will include how much is pre-approved and will help you get a realistic price when shopping.

“It’s all in a much better situation than closing and you need a lot more in your checking account,” Tucker said.

Many listings now have virtual and 3D tours that help potential buyers learn about a place before they see it.

Under California’s COVID-19 restrictions, real estate agents cannot hold open houses, and agents are limited to one showing at a time. Requirements include wearing a mask and signing a waiver. Buyers can start by viewing popular 3D tours on sites like Zillow, Redfin, Realtor.com and Trulia. It doesn’t look like the photos – but it allows potential buyers to experience what it’s like to walk through the entire property.

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Many agents use video services – such as FaceTime, WhatsApp and Zoom – to walk clients through properties. This happened before the pandemic, but the practice accelerated after the COVID-19 restrictions began in March.

It is still rare for buyers to get a house without seeing it. Zillow says only 12 percent of buyers nationally do this, but it could become a bigger factor if competition gets tougher.

Beer said it’s difficult for buyers when there are multiple offers on the same property. He said his company began reviewing homes that were taken off the market because they didn’t sell and contacting the owner before relisting the home. Beer also said he looked for rental properties and contacted the owner before renewing the lease to see if they would consider selling.

“Out there there are a number of sellers sitting at the kitchen table thinking about selling,” he said. “Going to them before they raise their hand publicly is the most powerful thing you can do as a buyer.”

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Another factor that buyers can compete with is cash offer. Sellers usually approach a buyer with cash because the transaction closes faster and reduces risk. However, this is not common in expensive areas like San Diego County.

Samantha O’Brien, a real estate agent at PorchLight in University Heights, said she has closed 40 transactions this year — 37 buyers and three sellers — and only one was a cash sale. He typically sells homes for $500,000 to $600,000.

The National Association of Realtors said cash sales made up 18 percent of purchases nationwide in September, up from 17 percent in the same period last year.

The next piece of advice is more of the mental end, in that it’s best to think about the house going over the asking price.

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It doesn’t happen often, but it happens often enough — especially in tougher markets like San Diego — that it might be a good idea to be prepared for it. Zillow said 34 percent of San Diego County homes sold in August for overpriced. That compares to 15.6 per cent at the same time last year and 15.3 per cent in 2018.

So, if you’re looking for homes for $400,000, it might be a good idea to look somewhere around $390,000 because you can increase the price to seal the deal.

This is probably not a lesson most people need. Raylene Brundage, an agent who sells several communities in North County, says her experience shows that buyers tend to buy below the purchase price they qualify for – especially millennial buyers.

“What I have found in the last three or five years, naturally they do that. I have no buyers who have reached the limit,” he said. “Because of what happened in the accident, and even young buyers, they asked them what buyers say they qualify for.”

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Brundage says many buyers have already put down the money needed to improve a home and are generally cautious.

Another thing to consider is that just because the interest rate has gone down, it doesn’t mean that your monthly costs – or the down payment – will go down as prices go up in San Diego County. Many real estate agents point to low prices as a reason to buy now but it can also help to break out a calculator.

The median home price in San Diego County in September was $650,000, up from $570,000 at the same time last year. In September, the interest rate on a 30-year, fixed-rate mortgage was 2.89 percent, Freddie Mac said, up from 3.61 percent a year earlier.

That means the monthly cost of a median-priced home is now about $2,445 a month, assuming 20 percent down on a 30-year fixed-rate loan and including property taxes and home insurance. That’s down from about $2,360 a month for the average home at prices and interest rates last year.

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However, a payment of nearly $130,000 was required to do that job, compared to $114,000 the previous year.

“Rising prices have never been offset by falling interest rates,” Tucker said.

There are always additional costs outside of the down payment—taxes, inspection fees and homeowner’s insurance—but San Diego homes can have hidden costs for people looking to buy.

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