Home Buyers, Sellers: Act Now To Strategize The Market
By Rosey Koberlein, CEO of Long Companies
Seller's markets—such as the one we're in now, where demand exceeds available listings—are great, if you're a seller. For buyers, not so much. But when interest rates are rising—as they are now—opportunities exist on both sides of the transaction for those who are prepared to act promptly.
Up front, a full disclosure: As CEO of a major real-estate brokerage, I certainly have a horse in this race. It's my business to help buyers and sellers with their transactions. It's also my business to pay close attention to market trends. And the story those trends tell is clear: Home prices and mortgage-interest rates are both rising. At the same time, strong demand—and hesitating sellers—is shrinking the inventory of available properties.
Delaying that home purchase can be costly for several reasons. Most obviously, your dream house could be sold to someone else. And the purchase price could be higher as time goes on, as will the interest you pay on your loan. Another cost: The longer you wait, the less benefit you'll see in terms of increasing home value and equity. Homeownership can be a powerful way to build wealth, but only if you take strategic advantage of market conditions.
Please don't take my word for it; let's look at the numbers. Daily rates drift up and down a bit, but right now the interest on a 30-year fixed-rate loan is about 4.7 percent, headed for 5 percent. Here's the headline from a May 17 report by mortgage-industry giant Freddie Mac: “Mortgage Rates Move Up to Highest Level in Seven Years.” That was when rates were around 4.61 percent for a 30-year loan. We're already nostalgic for 4.61 percent! And when rates go up, so do your monthly payments.
In May 2017, the monthly payment on a median-priced home in Tucson was $885.48. Fast forward to this May; that same home now costs $210,000, an 8 percent increase. That, along with higher rates, translates to a monthly payment of $1,020.34. The National Association of REALTORS® predicts Arizona home prices to rise by another 4 percent to 5 percent over the next year.
Common wisdom says rising mortgage rates will push buyers out of the market, reducing demand and forcing down home prices. But it doesn't always work that way. In a strong economy, Freddie Mac points out, rising mortgage rates actually increase demand as many shoppers become buyers, eager to lock in the lower rate. Meanwhile, the same report notes, prospective sellers are more likely to de-list their homes as rates rise, because most home sales are tied to a new purchase, and would-be sellers stand to lose the below-market rate they currently enjoy.
Rising rates, rising prices, shrinking inventory, reduced equity growth—it's not a pretty picture for buyers who wait too long. And mortgage payments are only part of most household budgets. Have you noticed the cost of gasoline lately? Or groceries? Unless you've seen a nice boost in your paycheck, your overall purchasing power is shrinking, day by day.
Here's my advice. If you're in the market to buy a home, do it now. You'll avoid further cost increases, and you'll benefit more as your home's value grows. And if you're a seller, list your property now, while demand is high. It is, after all, a seller's market.