Smart Money Podcast: Lower Mortgage Rates, and Moving During a Pandemic

Sean Pyles: Welcome to the NerdWallet Smart Money podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I'm Sean Pyles.

Liz Weston: And I'm Liz Weston. As always, be sure to send us your money questions. Call or text us on the Nerd hotline at 901-730-6373. That's 901-730-NERD, or email us at [email protected]. And if you want more Nerdy goodness delivered to your device every Monday, hit that subscribe button.

Sean: In this episode, Liz and I answer a listener's money question about how to move amid the pandemic. But first, in our This Week In Your Money segment, Liz and I discussed the mortgage outlook for August.

Liz: Mortgage rates drop when the economy stalls, and we are in one heck of a stall, thanks to the pandemic. It looks like rates for home loans are going to set new records in August — 30-year loans are around 3%, and 15-year loans are even lower.

Sean: So the question is, what does this mean for people out there? And the answer is that it's good news for refinancers, while at the same time, a lot of people, especially renters, are having a really hard time. One thing that I found really interesting looking into these recent numbers around home sales is that existing home sales were up 20% in June compared to the month before. And they're still down around 11% compared to last year, but I have been seeing tons of "for sale" signs in my neighborhood. So I think that people are really trying to take advantage of these warm summer months, buy a new home [and] maybe upgrade their living space before they go into whatever anticipated lockdown we might go back into in the fall.

Liz: Yeah, I think there's normally a surge of houses for sale in the spring and summer, because people are moving. They want to get in place before the next school year. So this is kind of like the demand that was suppressed during the early part of the pandemic is bursting out all over. And people are realizing, yes, you can sell a house during the pandemic. But right now we've got a situation where mortgage rates are super, super favorable, but a lot of people can't take advantage of them, because they don't have a steady income, or their income is down, or their current mortgage is on forbearance, which makes things complicated.

Sean: Right. And that's one thing that's really important to talk about as well. If you are on a forbearance, and you're looking to refinance, you're going to have to sort out that forbearance and end that before you actually kick off the refinancing process.

Liz: The experts basically say you've got to contact your lender [and] you've got to get back on a regular payment plan. Obviously you need to figure out some way to start repaying the payments that you missed, although you don't have to pay it all at once.

Sean: One thing that's interesting as well is the other side of these low mortgage rates and the surge of home buying is that the median home price was up 3.5% in June compared to the same time last year. And that's in part because there's pretty limited inventory in the housing market. And from what I've seen, this is going to persist for the coming months. I've been talking to some neighbors that are getting ready to sell, and they are really trying to jump on these low mortgage rates. But the houses that they're looking at are much more expensive. So I'm wondering, is it really going to be that great of a deal for them? Yes, they can get a lower mortgage, but at the same time, I think they might end up breaking close to even because of the higher housing prices.

Liz: Well, I've heard from a number of people who were hoping that we would have another crash in the real estate market so that they could buy a home. And I don't think that's really in the cards at this point. It seems like with these low rates, this might be an opportunity to get into a house, and be able to enjoy a little bit of appreciation. In other words, you want to get in sooner rather than later, but as always, you can't time markets. You want to buy a house when you're ready for it —when you can afford it, when you're ready to stay put for a while — and what's happening in the larger economy might be helpful, but you can't make your decisions just based on that. At least, that's my point of view.

Sean: Yeah. Which I think makes sense as well. And that's what we did. And I've been really happy to see that. In the year and a half since we bought a house, we've actually gained a good amount of equity because of how much houses in the neighborhood have gone up in price. And we're not even in a fancy part of town. So it's pretty impressive.

Liz: Yeah. I've been on the other end of that. When I bought my first house, the real estate market was starting to slide, and then it really declined. And it does not feel good to pay this certain amount for a house and then find out it's worth substantially less down the road. But again, I was ready to stay put for a while, and just rode it out. So either way I think it can come out OK. But one of the questions that we get is when it makes sense to take advantage of low mortgage rates to refinance. Have you considered refinancing with these low rates?

Sean: Oh, we did. We refinanced right at the height of the initial surge of refinancing — the end of spring. We saw that there was going to be a lot more economic uncertainty. My partner's in an industry that is notoriously unstable, and we thought, OK, let's get in while the getting is good, get a refi. And we are now paying $400 less because we were able to drop PMI from our monthly housing payment. So it is a big difference for us. And this made it so we've been able to save more. And also we just have a greater sense of security where our finances are at now because we're each saving 200 bucks a month, which adds up a lot.

Liz: Yeah. And we just did our third or fourth refinance in recent years. I mean, I have never refinanced so quickly. The old rule of thumb used to be that you would have to wait for mortgage rates to drop 1% — and that actually doesn't make any sense anymore, because refinancing costs are so much lower. Basically, you've got to look at the refinance cost and think about, are you going to be able to recoup that in the time you expect to be in the house? And for me, I want to recoup it within a year — I'm even more impatient than that. But since rates have gone down, we've been able to do that several times over. And I'm going to say for any older listeners that we've got, just make sure you don't keep refinancing so that you're paying a mortgage in your 80s. It really does make sense to have those mortgages paid off by the time you hit retirement age. That's not always true if you're rich enough to pay off your mortgage with whatever cash you have lying around — you're the person that can hang onto the mortgage. I mean, in that case, it can make sense to just let it ride. Most people aren't in that fortunate position. So you kind of want to set things up so that the mortgage is settled — is paid off by the time you're ready to pull the plug on work.

Sean: And one thing I want to talk about as well is the situation for renters. A lot of renters are struggling right now, and we know that in June, 18% of renters didn't pay their full rent. And it seems like we're on track for another month of that. And eviction protections are potentially going to be going away. We don't really know what's happening with Congress at the time of recording this. So there's great uncertainty, but some people who are in this position have options. If you're renting an apartment right now and you can't cover your rent, you can apply for emergency rental assistance if your state or a city offers that, and there's still some money in that pot. You could also try to reach a repayment agreement with your landlord, where you pay a little extra each month until you catch up on your past due rent. But obviously that's going to be really hard for people who have lost income and aren't able to pay their current rent. So it's a struggle all around.

Liz: It definitely is. If you're looking into those rental assistance programs, you can start with 211.org. That can connect you with all kinds of resources, including help paying the rent.

Sean: Well, I think that about covers it for now. Let's get to this episode's money question, which comes from Ana. They say, "I've noticed that a decent amount of rents have gone down, at least in Brooklyn, New York. And I've been wanting to move for a little while, but then COVID-19 hit. Luckily I still have a job, not married, no debt, no loans of any kind. I even opened up a brokerage account to trade. I know now is the time to be increasing our emergency fund and savings, and I am. But do you think that moving some time in the near future might be a smart move?"

Liz: This is one of those cases where there's an opportunity popping up that most of us didn't expect to happen. And you've got to think about it. Should I grab it now, or let it slide?

Sean: Right. Or should you wait a little bit longer and see if rents drop even more, but at the same time, moving is such a hassle. Do you want to go through that? And it can be really, really expensive. And this is a conversation I've had with a number of friends recently, and some of them have moved because they found apartments that have a lower rent, and they want to lock that in while they still can. But there are some really serious considerations to make when thinking about a move, especially a move during a global pandemic. So in this episode, Liz and I are going to talk with Amrita Jayakumar, a Nerd who's done some reporting on how to move safely in a pandemic.

Liz: Oh, this is going to be interesting because Amrita just moved, right?

Sean: Yeah, she did. She just bought a house. So it's going to be a really interesting conversation. All right, let's get into it. Hey, Amrita, welcome to the show.

Amrita Jayakumar: Hi, thanks for having me.

Sean: I'll set you up here a little bit. Our listener Ana is thinking about moving, but she's not sure if it's a smart idea during the pandemic and all the economic uncertainty of our current moment. There are a few parts of Ana's question here. It's about budgeting for housing, how to manage the expenses of a move, and how to move in a pandemic. So I want to first dig into that budgeting part, because that seems like one of her core concerns. So I guess I'd love to hear from you guys first, how you think about housing costs as they fit into a budget?

Amrita: So Ana's question is a good one, because right now a lot of people are being forced to move, whether they want to or not. And so at NerdWallet, we usually recommend the 50-30-20 budget when it comes to managing your money, where 50% of your budget goes toward needs, which includes housing, utilities — things like that. So that's the calculation you'll have to take into consideration. If you're thinking about moving to save money. Whether you're still able to do that and stick to the 50% of your budget. The 30 and 20, which make up the other parts of the budget, 20% of the budget goes toward savings and debt repayment. And that's a personal thing right now, depending on your financial situation, you may not be able to save much, and you certainly may not be able to pay back debt.

Liz: And of course with the 50-30-20 budget, we're talking about after-tax income. So you're trying to limit your must-haves, like shelter, transportation, food, utilities, minimum loan payments, insurance, childcare, to 50% of your after-tax income. And that is hard to do anywhere, it's especially hard to do in an expensive place, but it's really important to try to do that so that you can have some kind of balance.

Sean: Right. And where Ana is, in Brooklyn I imagine that's pretty hard to do as well.

Liz: Yeah.

Sean: You mentioned one thing there that I think is really important to dig into a little bit deeper, it's that you should really be trying to keep your housing costs and other necessities like your bills, cell phone, etc., within 50% of your budget here. Because when I was having conversations with my friends about moving, one of them, — he just got a promotion, which is excellent for him — but now he's thinking of moving into a more expensive apartment. To be clear, I don't think that now is the time to move into a more expensive place. I think if you're going to move right now, given all of the risks and the expenses of moving, you want to get something that's a little bit less expensive, so you can lock in that lower rate for at least a year to save more money, because saving is so, so important right now.

Liz: I can understand where he's coming from though. This feels like a rare opportunity to step up a little bit, to find a nicer place, to be in a better neighborhood — and it would be really tempting to just take advantage of that, especially if you feel like your job's pretty stable, and you can deal with the cost going forward.

Amrita: I think it depends on the person's situation. For sure, this is a time like we've never seen before. Places for rentals, especially, might open up in cities like San Francisco, which are particularly expensive. This might be your only chance to be at an advantage as a renter. So it makes sense to grab that opportunity if you can, but I would also pay attention to what kind of industry you're in, because job stability also matters. So if you do end up upgrading, you can't predict the future, but you would hope that your job is going to be stable going forward.

Sean: I think that's a really important point as well, because you are going to be spending a lot of time in your apartment, or at least you should for the foreseeable future, given everything going on. So yeah, it might make sense to invest a little bit more because that is something that's going to be both a need and a want. You're not going out as much, so maybe you have more flexibility in your budget to have a place that feels like it's more homey.

Liz: And maybe you could get the best of both worlds if you really like where you are now, and don't particularly want to move, if rents are dropping in your area, maybe you could open up negotiations with your landlord and say, "Hey, how about giving me a break?" I don't think landlords want to have empty apartments right now. And this might be a chance to trim your budget a little without the hassle of having to move.

Sean: Yeah, that's a really good idea as well. One thing I was thinking about in this conversation is just how expensive it is to move. And when you're doing this cost-benefit analysis, think about how long it might take you to recoup any expenses of a move. When I moved to Portland, for example, a couple of years back, I ended up spending around $2,500 on my move, including hauling my stuff up here, getting a rental car, buying new furniture, But I was saving $500 a month in rent immediately, so it only took five months or so for me to break even. So I think that that's something to consider as well at a time when we do want to be more conservative and save more money. Make sure that yeah, you're getting a place that you like, yes, you can stay there for months and months on end. But also you have to make sure that your long-term finances are in a good place.

Amrita: This is something that I'm reporting on at the moment. Given that you have to move during a pandemic, there are some costs you've may not budget for, which you now have to. So, for example, if you have to move across state lines, or even county lines, different places have different regulations for how long you may have to quarantine yourself. And if your new place isn't ready for you, will you have to quarantine in a hotel, or an Airbnb, or somewhere else. And if so, how are you going to pay for that? Those are some of the things we now have to think about while moving, which normally you would never have to worry about that. So if you are moving, definitely take that into consideration.

Liz: If you've been in one place for a while — ask me how I know this — you tend to accumulate a heck of a lot of stuff. And you might look back on your last move where you and some friends threw your stuff in the back of a pickup truck, had a couple beers and a couple of pizzas and that was it. It gets more complicated and more expensive the more stuff you have. So obviously you want to get some estimates about how much it will cost, so you can do that cost-benefit analysis that Sean was talking about.

Sean: Right. And PPE was never a cost that we had to consider in a move before as well. That's important. So can you talk with us a little bit about what your process was like for touring places? I remember you saying that you had to sign some waivers — what was that experience like?

Amrita: Yes. I recently bought a house.

Sean: Congratulations.

Amrita: Thank you. It was a very different experience from what you would expect. Even to go in to see a place, we had to be really sure that we wanted to go see it, because you had to sign a waiver. And of course you have to wear masks when you go in to walk around the place. They also limit how many people are allowed inside at a time. So it's usually the agent unlocking the place to just show it to you, and whoever else, your competition, I guess. If they're out there, would just come at a different time. So it was surreal to be walking around what could be your new house with masks on, and trying not to touch anything even though you really want to.

Sean: Yeah. Well, that's totally the opposite of when my partner and I were house-hunting a year and a half ago or so. We looked at so many houses, many of which we knew we didn't really want, or couldn't even afford, just to get a feel for what the scope was, what we could possibly consider. And it seems like you have to be a lot more intentional about where you're going, when you're doing it, how you're doing it right now.

Amrita: Definitely. And when you do decide to move, there's a lot of cleaning that you have to think about that maybe you didn't before, which includes sanitizing the new place before you move in, or checking to see how long since the last occupant was in there to decide whether you need to clean the surfaces more. I'm not pretending to be a virus expert, so please check the CDC website to know what precautions you need to take when it comes to surfaces and how the virus spreads. But you may want to sanitize your new place before moving in, just to be safe.

Liz: So I moved more than 20 years ago. That was the last time, and I hope it will be the last time ever. So we did not do virtual tours. We actually physically showed up. How helpful were virtual tours in looking around places? Do you feel like you got a pretty good idea of what was out there?

Amrita: I think they were useful just to get a sense of the size of the space. I know it sounds strange, because you're not physically there, but virtual tours — maybe we played video games a lot — they do give you an idea of how the place is laid out, but there's nothing like going in there and seeing it for yourself in the sunlight, or in the evening. I wouldn't say they're a substitute.

Liz: And noise, I imagine, is another issue. We rejected a couple houses that looked gorgeous on the outside, but then we stood inside them, and heard all the traffic roaring by. And when I moved, I didn't have a baby. How did you handle that, Amrita?

Amrita: Well, moving is stressful whenever you do it, but I had no idea how stressful it would be with a baby. So definitely consider that if you're moving. And I was lucky enough to have my parents around, to help look after the baby while we were moving houses, but we hired movers. And I wanted to make sure that both my parents, who are older, and my baby, were safe and could socially distance from the movers. So I had them stay in the new place while we handled the logistics of the move. And when the movers brought our stuff to the new house, I tried to keep them in another part of the house at all times, so that they didn't interact with the movers. So that can be nerve-racking when you are moving and you're hiring movers, just how to negotiate that space and that distance of six feet while also trying to move yourself.

Sean: And also tip them maybe more than you would otherwise given everything going on.

Liz: Well, I'm glad you managed to keep your sanity, and you've got such a wonderful place. It looked really great on the last Zoom meeting that we did. So thank you, Amrita, for joining us. We really appreciate it.

Amrita: Thank you.

Sean: Let's get on to our takeaway tips now, and I'll start us off. First up, if you're going to move, figure out your goal. Lower rents can help you save money or maybe a score a better place.

Liz: Next, use your leverage. If saving money is your goal, start by negotiating with your current landlord.

Sean: Finally, know how to move safely. That means wearing masks, potentially wiping down surfaces, and keeping distance from movers. And that is all we have for this episode. Do you have a money question of your own? Turn to the Nerds, and call or text us your questions on the Nerd hotline at 901-730-6373, that's 901-730-NERD. You can also email us at [email protected], and visit nerdwallet.com/podcast for more info on this episode. And of course, remember to subscribe, rate, and review us wherever you're getting this podcast.

Liz: Here's our brief disclaimer, thoughtfully crafted by NerdWallet's legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes, and may not apply to your specific circumstance.