The market has changed … but what does this mean for buyers?
The past 18 months in Real Estate really have been quite a wild ride, a ride that has clearly favored Seller’s. We all know that the unprecedentedly low interest rates, coupled with historically low levels of inventory, created a frenzied and highly competitive market for buyers. House prices skyrocketed as homes sold way above list prices, typically with multiple bids and within just a few days of coming on to the market. It was tough being a buyer.
The interest rates were never set to stay as low as they were, and alas we did see a rapid increase, as the unpredictable market continued to shatter all the norms.
With elevated house prices, and now higher interest rates, there is a feeling that the current market has now, somehow, become even harder for buyers. On the surface this is an understandable perception … however, when we take a deeper dive, the complete opposite could in fact be the truth!!
Here is an example of how, in this new market, you may have a far greater chance of being successful in purchasing a home, how the impact of the interest rate increase could be minimal, and why there are still good reasons to buy…
Buying a $500,000 Property In Snohomish County
- House listed in the peak of the market at $500,000
- Average house sold for 114% of list price
- Offer accepted at $570,000 (114% of list price)
- Interest rates at 3.5%
- Monthly payment (P&I) based on 10% down payment = $3,183.30
- House listed in a slightly cooler market at $500,000
- Average house being sold for 98.7% of list price (downward trend)
- Offer accepted at $485,000 (97% of list price)
- Interest Rates at 6%
- Monthly payment (P&I) based on 10% down payment = $3,365.57
- $8,500 ‘reduction’ on outlay for down payment
In the above example, buying the home now, with higher interest rates, works out to be only $182.27 per month more. When we factor that the down payment outlay is $8,500 less, that effectively reduces the monthly difference to just $158.66 per month.
Less Competition = More Chance of Success
With the increase in property values, and the increase in interest rates, we have seen a number of potential buyers leave the market. They may have been priced out of homes. They may have left the market out of fatigue from failing on multiple bids. They may have had to renew their lease having failed to buy in time. Whatever the reason, there is a significantly reduced buyer pool to compete with … fantastic news should you find the property of your dreams!!
Added to this, there has been a considerable increase in homes on the market, giving buyers more choice than before. More choice means less likelihood of being in a bidding war on a property… again great news!
In fact, it’s not just about the competition on bidding on the property, but also the ability to take time on your decision. Buying a home is one of the biggest moments in life, and so with a less competitive market, this decision can now be assessed and deliberated more, as homes are now taking longer to sell.
Negotiations Are Back:
As the buying pool has reduced, and homes are now sitting on the market for longer, the needle has shifted. Whether negotiating on purchase price, closing costs, or even both, buyer concessions are back.
In April 2022 we saw the demand peak, with Homes in Snohomish County achieving on average 114% of list price. The following months saw a gradual slow down, and in August 2022 we saw this drop to 98.7%.
So despite the interest rates no longer being as low as they were, the ability for the agent to negotiate on behalf of the buyer has increased, thus limiting the financial impact.
Rental Rates Have Jumped
The typical alternative to buying a property is to rent. Renting absolutely has its benefits and can indeed be a better option for many people. However, as we have seen property prices increases, the rental rate increase has been even more dramatic; Rental Rates have increased by nearly 20% this year!!
This means that if you were paying $2,000 per month for a 2-bedroom apartment, you may now end up paying $2,360 for the same apartment. That is an additional $4,320 investment over the course of 12 months that will not see any returns.
We Can Only Operate in the Now
The reality is, no one has a magic crystal ball to see the future. The low interest rates that we saw were historic, they have never been that low before! The interest rates we are seeing now are similar to the pre-pandemic market. Likewise, the dramatic house price increases we saw was something completely new. House prices typically steadily increase year-on-year, but who knows if the market will react that way again in the future.
It is a case of living in the now, and reacting to market changes if they benefit you
So what if you buy a house now and the interest rates change? Well, if they drop, then you can always refinance to the lower rate and watch your equity build. If they increase, then great, you’re locked in at the lower rate. The saying “marry the house, date the interest rate” really does ring true.
So despite the “doom & gloom” reporting, all is not lost!! Yes, the market still has its challenges for buyers, but there are some genuine positives out there too. With the right plan, the right data, and the right guidance, this really could be the right time to strike.