WARNING: THE REAL ESTATE MARKET HAS SHIFTED

WARNING: THE REAL ESTATE MARKET HAS SHIFTED. Interest rates have gone up, inflation is through the roof. What does this mean for home buyers, sellers and home owners?

Inflation and Interest Rates

We are all feeling it in our pocketbooks. Between gas, groceries and everything in between, life has gotten more expensive.

To tackle this inflation, the Federal Reserve has increased the interest rates. And even though that is not completely tied to the mortgage rates, mortgage rates shot up by 2% in a matter of months.

In the last few weeks, interest rates leveled off and gone down again, but the 3 and 4 % interest rates we’ve enjoyed are pretty much gone.

Increase In Home Owner Equity

If you bought a house in the last year, congratulations! Not only did you gain $55,000 in equity on average, but you got a great mortgage rate!

Even though you probably thought you were overpaying for your house, you are looking pretty smart right now! Your home value has gone up and you have a rate that will NOT increase for the next 30 years.

If you did NOT buy a home before interest rates went up, you will pay more not only in interest rates, but since the price of the houses have gone up by that $55,000 on average, you are suffering a double whammy.

Decrease In Home Prices?

Back when the interest rates shot up by a point, a client saw a house hit the market he really liked and he asked me how much below list price I thought he could offer. He was surprised when I told him that house was going to go for over list price. That house had multiple offers and sold for $20,000 over list price.

We are definitely seeing a shift in the market now, but nice properties that are well priced still receive multiple offers and are still going over list price.

Home Affordability

The main difference is that some buyers can no longer afford the homes they could at the beginning of the year.

For instance, if a buyer was approved for a $500,000 house in January, when the rates increased by 2%, all of a sudden they are only approved to buy a $400,000 house. That is a 20% reduction in their purchasing power.

And since home values also increased over the last few months, it is likely that that $400,000 house was actually a $380,000 house in January. That is a BIG difference.

You have fewer buyers competing for the homes, resulting in fewer offers. But that does not mean NO offers. And it also does not mean a reduction in sales price.

However, the time for sellers to plop a house on the market that is not “ready for prime time” or is not in perfect shape and expect to get a record price for it is over. There are still multiple buyers for homes that are properly prepared for the real estate market and priced right. It may take a few days longer, but they will still net you some great proceeds.

More Available Homes On The Market

Overpriced homes are going to linger on the market and that is what we are seeing now.

We now have 44% more homes on the market than we had in 2021 around this time. SO that is a big increase. But there is no need to panic and think the housing market is collapsing or the bubble is bursting. We are still 35% UNDER of what we had available in 2020. And everyone was complaining of how few homes we had available. In fact, this is what I wrote in my weekly email 2 years ago.

But the increase in homes on the market means that buyers have more choices. And that is a good thing. That means if you can swing the payment and see a house you love, buy it.

Experts are predicting that home values are continuing to rise over the next few years, but we are definitely not seeing the wild increases we had over the last couple of years. That was never sustainable.

Housing Market Crash

And even though it is likely we are in a recession, that does not mean that home values will tank and the real estate market will crash. And the situation is far different than what happened in 2008. Just take a look what happened to home values during the previous recessions.

Your Next Steps

If you can buy, buy. If interest rates go up, you bought at the right time. If interest rates go down, you can refinance and take advantage of the lower rate and you still bought the house at a lower price.
Remember, you marry the house, but date the rate. Don’t try to time the market, because that never works.

If you are thinking about buying, selling or investing in real estate to hedge against inflation, reach out to me to get the latest neighborhood market report for your zip code today or click here.