What’s causing it and how to weather this challenging market
Key takeaways
- With a housing market that never fully recovered from the 2008 recession, homebuyers are facing fewer homes hitting the market, with more people willing to pay premiums.
- One option to navigate high interest rates could be a “buydown.”
- Our podcast episode discusses if waiting till the market turns around is key or if it will only cause more negotiations down the line.
With interest rates still hovering a few ticks under the 20-year high of 7.08% set in November 2022, conventional wisdom dictates that home prices should be down as housing demand naturally decreases. Alas, there’s nothing conventional about this housing market, as existing home prices have only edged down slightly from their June 2022 highs.
Why are home prices remaining stubbornly high, even as the housing market overall has weakened?
According to Jessica Baldwin, Vice President at First United Bank Addison Baldwin, the market is being hit with a perfect storm of factors that are keeping home prices high—and many homebuyers are looking for answers.
“There are market dynamics going on here that we haven’t seen before,” says Jessica. “But it really comes down to a low inventory, high demand scenario.”
Unlike other challenging housing markets, the high interest rates are contributing to the lower inventory levels. Here’s why.
According to Redfin, a whopping 82.4% of homeowners have mortgages under 5%, with 62% under 4%. Starting in March 2022, the Fed reeled off 10 interest rate hikes, pushing rates higher and faster than any other time in recent history. Before many homeowners could react, they were essentially handcuffed to their low locked-in rates.
“You have homeowners who bought or refinanced in the 2’s, 3’s and 4’s who are simply not willing to sell,” says Jessica. “In this environment of higher rates and higher home prices, they’re not getting more for their money, so they’re staying put.”
Combine that with a new housing market that never fully recovered from the 2008 recession, recent supply shortages holding up many new homes that are being built, and strong demand fueled by a robust labor market, and homebuyers are facing a double whammy: fewer homes hitting the market, with more people willing to pay a premium for the ones that do.
Even in rural areas, prices are high and competition can be even higher, spurred on by the work-from-anywhere crowd.
With all those factors in place, what are prospective homebuyers to do?
Fortunately, Jessica says the dream of owning or upgrading shouldn’t be put on the shelf just yet.
NAVIGATING THE STORM
The key to succeeding in a tough real estate market like this is to surround yourself with the right team.
“A good financial advisor can help buyers find the right monthly mortgage allocation for their unique financial situation,” says Jessica. “With a proper budgeting plan in place, that magic monthly mortgage number often ends up higher than expected.”
The same thing goes for a mortgage loan partner. In a market like this, Jessica recommends buyers find a lender with the expertise and resources to get a little creative in this ultra-competitive environment.
“Many people aren’t aware of the many different products we have available to help our clients win in a competitive market,” says Jessica. “It comes down to giving the client that one-on-one, personal service that buyers rarely get with the big, cookie-cutter lenders.”
One such option Jessica finds a lot of success with is called a temporary buydown. Although there are many ways to structure them, buydowns require up-front funds to be deposited into an escrow account to temporarily reduce the interest rate for a specific period of time.
“Buydowns are just one of many levers we can pull to achieve what buyers want,” says Jessica. “The key is being in lockstep with a trusted mortgage professional before the search begins. These things need to be planned from the beginning, so buyers are ready to go when that perfect home hits the market.”
“A lot of buyers are so hyper-focused on getting the lowest interest rate, but in reality, succeeding in a market like this is more about getting to know the client, their long-and short-term plans and goals, and crafting the best plan to make that dream home a reality.”
To learn more about Jessica and her team at First United Bank Addison Baldwin, here’s how to get in touch.
For anything else you need, from assessing the health of your personal and business finances in preparation for buying a new home to full financial planning and professional tax services, CWA is always here to help. Set up your free consultation today.
So should you wait until the market turns around before you buy your home? The answer might be different based on if this is a starter home, forever home or even vacation home. Judson and Hunter weigh in on a recent episode of the Accumulating Wealth Podcast.
