The 2022 housing market is forcing buyers to ignore inspections and pay more than they ask

The 2022 housing market is forcing buyers to ignore inspections and pay more than they ask

If you’ve shopped for a house recently, you’ve probably become familiar with the new rules of real estate: you’re going to compete against multiple bidders, you’re going to pay more than the asking price, and you’re probably not going to find the house you want. your dreams.

The spring home buying season is in full swing and weary buyers hoping to take a break from the ultra-competitive market see little change.

But after years of cheap borrowing costs that have made home ownership accessible to far more Americans, contributing to a historically low supply of properties for sale that has driven prices up, the U.S. real estate market is doing facing new headwinds.

The fundamentals that fueled the real estate frenzy are changing – and buyers and sellers are wondering how to navigate the market. Here’s a look at where things could move on multiple fronts in the coming months.

Mortgage Interest Rate Forecast

After hitting a record low of 2.65% in January 2021, mortgage rates have climbed at their fastest pace in decades. The average 30-year fixed-rate mortgage jumped above 5%, and now homebuyers need to earn approximately $25,000 more per year being able to afford a typical home, compared to last year’s rates.

Borrowing costs rose sharply as the Federal Reserve began raising its benchmark interest rate and implementation of other new policies intended to slow the economy and curb rapid inflation.

According to a survey of the Federal Reserve Bank of New York.

If, in fact, rates go that high, they shouldn’t stay there long, says Ralph McLaughlin, chief economist at Kukun, a real estate data and analytics firm.

“If mortgage rates hit the 7, 8, 9 percent range, I wouldn’t expect that to persist for very long just because the Fed would likely take action,” McLaughlin said. “It means there is something else going on in the economy.”

He expects rates to not rise above around 6% over the next six months to a year as the mortgage market has already priced in the Fed’s planned interest rate hikes.

House price forecast

Housing has never been so expensive. Still, prices are expected to cool gradually from late this spring, real estate firm Zillow says in its latest provide.

The company expects home prices to rise about 15% over the next 12 months, down from its forecast of 16.5% last month.

The downward revision, Zillow says, reflects affordability headwinds that “have strengthened faster than expected, largely due to sharp increases in mortgage rates.”

Lilly Rockwell, a real estate agent with Compass in Austin, Texas, isn’t so sure that rising mortgage rates will slow the market, at least among the buyers she works with.

“Every client I have right now has come to me at some point this spring and said, ‘Do you think rising interest rates will affect demand? When I ask them why they’re asking, they all say, ‘We’re hoping demand will slow down,’ which tells me they can all handle the higher interest rates,” she says.

Competition for homes in Austin has been so fierce that Rockwell now tells clients that if their budget is, say, $700,000, they should look for homes in the $500,000 or $600,000 range.

Rockwell recently had a client offer $75,000 — or about 10% — above the asking price for a three-bedroom home built in the 1940s near downtown Austin.

It took a full day for the listing agent to even acknowledge the offer, and Rockwell didn’t find out his clients had lost the house until the listing status was changed to “under contract.” “.

“To me, it reflected how unimportant our offer was to this listing agent,” she says.

United States Housing Inventory

The supply of homes for sale in America is desperately low. The inventory is down 63% where he was from before the pandemic.

Recent home buyer Tina Burjaliani was shocked at how tight the market was when she started shopping for a home after moving to the Washington, DC area last summer.

Burjaliani, who moved to the United States from Europe for her work at an international organization, had bought houses before, but not everything she learned from those experiences was relevant.

After being outbid on three properties, Burjaliani was finally able to secure a three-bedroom home on a leafy street in a DC suburb by bidding about 25% above the asking price and skipping the inspection.

“Even though last month the interest rate went up,” she says, “in my experience, the competition was still very high.”

One indicator, however, shows that competition is already easing. A report from real estate firm Redfin shows that competition among homebuyers has diminished due to rising mortgage rates and the withdrawal of buyers from the market.

The company said 65% of real estate offers written by its agents faced competition in March, compared to 67% in February. This was the first month-over-month decline since September.

Strategies if you are considering buying a home

Buyers are finding that to win a home in a bidding war, they must present an offer that makes the seller happy.

“In my initial consultation with buyers, I’m very direct and honest,” says Rockwell. “I’m talking about how you’ll have to give up almost every contingency you can.”

This often means giving up an appraisal contingency, and if an appraisal is lower than the contract price, the buyer is usually obligated to pay the difference.

Buyers may also consider offering free or low rent to sellers who can buy a home themselves and may not be ready to move out when their home sells.

When it comes to borrowing costs, analysts say buyers worried about rising 30-year mortgage rates should consider an adjustable-rate mortgage – or ARM – that starts with lower rates than longer-term loans. term.

Ultimately, buyers shouldn’t try to time the market when it comes to prices and mortgage rates, McLaughlin says.

Those willing to wait for more inventory to hit the market will have a better chance of getting the home they want, he says. And these buyers are likely to stay in their homes longer and benefit more from homeownership, even if they have to pay a higher mortgage rate.

“You don’t live directly in your mortgage rate, you live in your home. And that’s the line of thinking homebuyers need to understand,” McLaughlin says. “The real benefits of home ownership accrue after you’ve owned a home for a long time, and you’re more likely to own a home for a long time if you like the house you live in. “

Hope for the long-term housing market

In the coming years, slew of baby boomers will start selling the homes they’ve lived in for decades. Many will likely move into retirement communities, opening up opportunities for young households to buy their homes.

Builders will also contribute to the supply. Although they’ve been hampered by labor shortages and supply constraints, they will eventually catch up, McLaughlin says.

“Most new home buyers own existing homes,” he says. “So when homebuilders deliver new homes and these buyers move in, they’re usually selling their own home. This will help free up another house.

High prices could also lead to an increase in supply. Even if a homeowner has taken out a mortgage with one of the historically low interest rates years, the possibility of cashing out can be enticing.

“Everyone has a number,” McLaughlin says. “Not everyone is going to hit it at the same time, but the higher the prices go, the more those numbers are hit.”

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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