The last couple of years have seen an absolutely scorching real estate market! It has been a great time to sell property. According to the Freddie Mac Housing Price Index (FMHPI), housing prices in the United State rose 17.8% in 2021. This increase hit 30% or more in some areas. The increase was due to a robust demand for homes and the record low interest rates of 2020 and 2021. Many people chose to find that “dream home” while interest rates were low, and as a result, even higher priced houses became more affordable. It was not uncommon at all for buyers to offer $10k, $20k, or even $50k over what the seller was asking, in order for them to get into that perfect house.
This all came to a screeching halt as we went through 2022. A big rise in mortgage rates cooled the willingness and ability of potential buyers. When rates more than doubled, many borrowers’ buying power decreased dramatically, meaning they could no longer afford a certain loan at 7%, when they could easily afford it at 3%. This naturally caused a slowdown in the market. Not as many people looking to buy. Homes sit on the market longer. Prices come down. You can see what has happened. We have gone from a “seller’s market” to a “buyer’s market”, meaning sellers no longer “hold all the cards”.
If you are still looking to purchase, the time to do it is coming. Below are just a few tips to help you be ready to hit this market at just the right time.
-Get pre-approved. This is the first thing I would recommend doing. Sit down with your mortgage professional before you talk with a realtor OR even look at any houses. You need to know what you can afford. You need to establish what you are comfortable paying every month. And you need to determine what price range that payment is going to fall into. Go over several loan options and discuss which one would suit you best and which ones you qualify for.
-Talk with a LOCAL real estate agent. This is crucial in getting the best deal on a house that you can possibly get. Local agents who regularly deal in the areas where you are looking to buy would (or should) know their market like the back of their hand. When you tell them the type of loan and price range you are looking for, they will compile properties for you to go and see. When you find that perfect one, they will help you negotiate the best price for that property. Plus, the buyer doesn’t pay the realtor anything! The agent is paid out of the seller’s proceeds. A real estate agent’s expertise is invaluable in this process.
-Don’t jump at the first thing you see. In the last two years, we’ve seen houses go under contract in less than an hour after being listed. It was very rare for a home to not have an offer within a week. However, as we mentioned before, those times are changing to the buyer’s favor. You don’t have to make an offer on the first thing you see with a for sale sign just because you are afraid it won’t be there next week. Take your time. Be patient in finding that house that suits you and your family.
-Don’t be afraid to negotiate. You never want to insult a seller with your offer. (“Hey, I know you’re selling your house for $300,000, but I’ll give you $95,000 for it.”) But as the market cools, buyers now how some negotiating power. We aren’t seeing very many houses going for over asking price these days (some are, but not many). Talk with your realtor and get a good idea of a reasonable offer that the seller might consider, especially if the house has been on the market for a bit. There can be some good deals out there now.
-Don’t let the rate scare you. Rates are higher than what they have been in the last two years (although we’ve seen a little relief recently). Don’t let that completely frighten you from purchasing a home. You should certainly consider the payment and make sure it fits your family’s budget comfortably. But keep in mind that at some point, we should see rates come back down (hopefully sooner than later). When they do, a refinance is always an option to get drop your monthly payment. Talk more with your mortgage professional about those options.
So again, if you are in the market for your first home or maybe that forever home, the market is turning in your favor. Be ready so when you find “the one”, you’ll be able to make it a smooth transaction.
Josh Moody has decades of experience in residential mortgage lending and is with The Mortgage Center in Cullman, Alabama. He resides in Gardendale and is a contributor to North Jefferson Magazine.
