High interest rates are impacting homebuyers and the real estate market. Mortgage interest rates are at their highest level in 20 years. The housing market reaction has created financial headaches for buyers. The number of existing homes for sale is decreasing, and new construction often sells before real estate agents can put up a for sale sign.
As a former real estate agent, current home remodeler, and director of a local bank, I would like to share some insights into how interest rates are changing buyer and seller behavior and reactions to the market. .
Home prices are too high for some buyers
To combat rising inflation, the Federal Reserve has been raising interest rates. Rising interest rates mean consumers are paying more to borrow money. This includes everything from swiping your credit card to applying for a mortgage. Consumers who could afford mortgage payments in 2022 may now have difficulty making payments or even qualifying for a mortgage.
According to the National Association of Realtors, home sales are down nearly 17% every year. Lenders Freddie Mac says mortgage rates are at their highest levels since his 2001. To give you a better idea of what this means for your wallet, your monthly payments on a $300,000 mortgage will be about $330 higher than if you bought. last year.
For some home buyers, this rise in home prices is forcing them to put their dreams of owning a home on hold for the time being.
“Interest rates are putting a lot of buyers on the sidelines,” said Kathy Trevino, president of the Houston Association of Realtors. “For first-time homebuyers, if you were looking at this same time last year and were just waiting, you probably wouldn’t want to. That will happen,” he said. I was kicking myself and thinking, “I should have bought it.” ”
Sellers are finding themselves stuck at home.
Some sellers choose to take their homes off the market. This is not due to a lack of interested buyers. If anything, you should reconsider your decision to sell your home because of the high interest rates.
It’s cheaper than applying for a loan for a new home, even if the potential seller is still paying off their mortgage. In most cases, the seller may incur a loss after signing a new mortgage.
According to Bankrate analyst Jeff Ostrowski, “Many American homeowners don’t plan on moving anywhere anytime soon. They don’t want to part with a 3% mortgage, especially a 7% mortgage. “Mortgage loans are %. That’s not good news for those who want to buy. The supply of housing is limited.” Housing market statistics support these claims. I support it. The number of homes for sale is down about 15% from last year. This housing shortage could be good news for those looking to sell. However, buyers often pay a premium for existing builds and new builds. Again, these premium prices only add to your already high mortgage payments.
Bidding wars are becoming the norm
Homebuyers had expected a bidding war as people flocked to more spacious suburbs from crowded cities during the global pandemic. But even though the pandemic is over, bidding wars are still common.
Homebuyers should prepare for this scenario. Sellers are not afraid to ask a high price for their home because they know someone will pay the price they ask. When you make an offer on a property, you should expect to join a list of other potential buyers.
Sellers don’t have to accept low offers because multiple buyers are interested in the same property. Instead, bidding wars allow homeowners to earn more than their original asking price.
The lack of available homes on the market only increases your chances of getting into a bidding war.
Buyer is looking for a new property
As existing homes decline, buyers are looking for new construction. The number of new constructions is increasing, increasing by approximately 31% compared to 2022.
That’s good news for homebuyers, but even as new home prices fall and sales increase, it does little to offset rising mortgage rates.
Homebuyers face two dilemmas. The first is the number of new homes available. There are still more buyers than new homes for sale. Another obstacle is high interest rates. Even if prices are lowered, buyers still have difficulty paying the higher-than-average interest rates associated with mortgages.
the house is getting smaller
As always, size matters. Now, instead of getting bigger, it’s just getting smaller. As prices drop, home builders are also downsizing. Compared to larger, more spacious homes, smaller homes cost less to build, and those savings are passed on to the buyer.
The National Association of Realtors notes that the average size of new homes has decreased from 2,359 square feet to about 2,200 square feet. While a reduction of about 100 square feet doesn’t seem like a size reduction, it does make a difference. .
Another change in the housing market due to rising interest rates is the popularity of townhomes and condos. A few years ago, homeowners were looking for an escape from apartment complexes, and now apartment complexes are becoming the place to be.
The lack of maintenance requirements is an attractive selling point for some potential buyers. The HOA handles everything from yard work to building maintenance. However, there is a renewed interest in owning condos and townhomes because they have a lower selling point compared to most single-family homes.
Interest rates change the housing market
High interest rates affect the decision to buy or sell. For sellers, it may make more economic sense to continue living in their current home. For buyers, a lack of existing homes and bidding wars for new homes are making it difficult for buyers to find a property they love that fits their budget. As a buyer or seller, it’s up to you to decide when is the best time to enter the market.
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Newsweek is committed to challenging conventional wisdom, finding common ground and finding connections.