When we had the sudden increase in mortgage rates last May, buyers hit the brakes and we had another dramatic change in the housing market, going from a frenzy with multiple offers to pretty much a standstill overnight. With homes sitting on the market and few buyers, we shifted from a sellers’ market to a buyers’ market giving the buyer negotiating power again.
The Market Did not Crash
There was a lot of fear the housing market was going to crash like it did in 2007/2008. The market couldn’t continue at the pace it was on and when the market shifted, buyers were waiting to see if the bottom was going to drop out of the housing market and prices were going to plummet, it didn’t happen.
Prices did decline by 13.6 percent from May to December which was possibly the bottom of the market as we have started to see an increase again.
Buyers Are Coming Back into the Market
Once buyers realized the housing market wasn’t going to crash, and mortgage rates are fluctuating between a tighter range with a good chance of going higher, buyers decided to get off the sidelines and come back in the real estate housing market again. After all, if mortgage rates did drop, they could refinance to the lower rate but at least lock in at the rate now.
In January we started to see buyers come back and demand has picked up over the past couple of months while supply is declining. We have started to see multiple offers again on some properties, but buyers are still hanging on to their negotiation power in most areas. But how long is that going to last?
Buyers Have Negotiating Power
Today, buyers still have the upper hand, but that margin is getting narrower every day. When homes sit on the market for longer, sellers are more likely to accept a lower offer but what is really beneficial to buyers right now is the negotiation power they have to set their own terms.
Repairs: Sellers are willing to do repairs. Unlike the housing market for the past few years when buyers had to throw everything at a seller and purchase a home As Is, now the buyers have the upper hand and can ask sellers for repairs.
Sellers Concessions — Closing Costs: Offering $10,000 less on the purchase price doesn’t make much of a difference to your monthly mortgage payment but having the seller pay $10,000 towards your closing costs means that is $10,000 less you have to bring to the table at closing. It’s like cash in your hand.
Rate Buydown: This has become one of the most popular concessions over the past few months and something we haven’t seen before, or at least not in the 14 years I have been doing real estate. When the rates jumped up some buyers were priced out of the housing market or had their buying power cut. To help negate the higher interest rates, buyers are asking the seller to contribute towards a rate buydown, usually one to three percent of the purchase price.
You’ll generally pay one percent of the total loan amount for each point and receive a 0.25 percent rate reduction, but the cost and discount vary depending on the housing market and lender and type of buydown you get. Make sure you check with your lender if the rate buydown is temporary — usually a one to three-year rate buydown, or a permanent fixed rate reduction for the entirety of the loan.
Renting Versus Owning
When home prices increase, rental prices are right there with them and have increased 48 percent in the past two years. With sellers willing to pay concessions towards a buyer’s closing costs or to buy down the interest rate, and with down payments as low as 3 percent, owning a home is becoming more attractive to renters.
Why pay someone else’s mortgage payments when you can pay your own? Homebuyer.com data shows a 15.4 percent jump in first-time home buyer mortgage applications in February compared to the prior month
If you are thinking of buying a home, now may be the best time when you can take advantage of the negotiation power a buyer has. I can help guide you through the process and negotiate the best possible deal tailored to what benefits you the most.
Please don’t hesitate to contact me if you have any questions or are ready to start the home-buying process and find your perfect home.