Here we are... in the middle of yet another Real Estate rollercoaster. Competition was high and rates were low earlier this year, and now rates are high and competition is low. So what gives? As a buyer, I am sure you are thinking to yourself it's best to wait it out and hope rates go back down. But is that the best idea?
Earlier this year agents and buyers alike were BEGGING for less competition. Unfortunately the only way to solve this issue was for new construction to kick into hyperdrive and build twice as much as they had been building to ease the low inventory, or for rates to go up to squeeze buyers out of the market. Well, the latter of the two occurred, and in a very drastic fashion.
So what now? Let me break down a few scenarios:
You could compete with the high home and mortgage rates, but you'd rather sit and wait to see if the market levels out. This is what most buyers are doing, which is why competition right now is lower. The moment rates go back down or if home prices head in the opposite direction (not likely) competition will be back to sky high and like it was in 2021 and the beginning of 2022.
You already were struggling to scrape together a down payment and meet the debt-to-income thresholds, and now you can't afford your ideal home. This, unfortunately, has been a reality for some time. Sure, rates were lower, but buyers were priced out of the market due to the insane over asking amounts and waiving of most, if not all, contingencies by other buyers. So, while buying your dream home may be put on pause, does it really make sense to keep padding your landlords pocket? Or, does it make sense to expand your search outside of your "ideal" area or dial down some of your "must-haves" in order to get into a property that will start earning you equity?
You talk to your lender and Realtor about all the options and benefits of buying now. You can buy down your rate, lock into an adjustable mortgage at a lower rate, re-finance if rates go down, and capitalize on putting less money down while still being able to compete in this market. With the lower competition, buyers have a better chance of getting an offer accepted with an appraisal contingency, an inspection contingency, at/under asking price, or sometimes all 3! If rates go down, we will likely go back to the highly competitive days.
So let's wrap this up with my final thoughts/predictions:
Higher rates - bad. Less competition - good. The end.
Just kidding - Buyers are feeling the squeeze, because we have had historically low rates for over a decade. But, imagine how buyers felt in the 1980s when rates were over 18%. YIKES! Back then buyers were contributing roughly 50% of their income towards their mortgage whereas, on average, today buyers are contributing roughly 30% of their income towards their mortgage. (most numbers taken from US Census Data).
So I recommend keeping your eyes and options open to buying right now if you are financially able to. Get pre-approved, talk to a Realtor about options, and be open to a great house even if rates are higher than you feel comfortable with. In my opinion you can either pay more for a higher rate now with hopes that you can re-finance once rates go down, OR you can get smacked around by competition that limits your ability to do an inspection and potentially causes you to pay thousands and thousands of extra dollars out of pocket on top of an already high purchase price. To me it all will even out and you will be able to start earning equity in a great home sooner rather than later if you start looking now.
Until next time, stay sweet!
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