The Housing Market Is Not as Bad as You May Think
Thu Nov 10, 2022 on Florida Real Estate
With mortgage interest rates breaking 7% as the Federal Reserve attempts to quell inflation, there is much “doom and gloom” news about the housing market. The National Association of Realtors report decreased home contracts falling for the fourth straight month in September, down 31% compared to last September. A typical homebuyer in October paid 77% more on their loan per month than last year, according to Realtor.com. And there are many sellers waiting to see what will happen next before placing their homes on the market as they too are concerned about the mortgage rates for their next home.
Yet, the housing market may not be as bad as you may think. Why? For one, many analysts do not expect homes to free fall as they did in the Great Recession of 2008 because of tighter underwriting practices, a substantial increase in home price appreciation, and all cash investors ready to purchase when prices dip. While prices have fallen, prices were still an overall 15.8% above July 2021. Some predictions expect that home prices will fall about 5% over the next six to twelve months before stabilizing.
Further, increased mortgage rates seem to be adjusting rental rates as more homeowners are looking to rent their homes until the market fully stabilizes. Some are offering renters with an option to buy later in their lease as many understand that, at some point, mortgage rates will not continue to rise. The Mortgage Bankers Association, for instance, predict that rates for 30-year fixed mortgages will drop to 5.4% by the end of next year.
The current housing market is providing options for home buyers despite rising mortgage interest rates. Some home buyers are purchasing homes that they can afford now and plan on refinancing when mortgage rates eventually decrease. Others are reconsidering adjustable-rate mortgages, as these mortgages are offering a starting interest rate around 1% lower than 30-year fixed rate mortgages. More lenders will most likely offer more adjustable-rate options in coming months as a result of higher interest rates.
Additionally, the current interest rate environment is creating more and more seller concessions. For instance, sellers are more open to agreeing to contract contingencies in case of financing issues or even to pay for more buyer costs such as helping buyers “buy down” the rate in order to sweeten the deal. Also, Sellers are more likely now to list their homes at a reasonable price than last year when buyers typically bought homes for over asking price.
What does this all mean?
While we all may agree that the housing market is in the process of a correction, home buyers are still buying homes. Sellers are more open to providing concessions, and homebuyers are deciding to purchase now and refinance later. Bottom line: while the housing market is in flux, it certainly is not like it was in 2008, and homebuyers still need or wish to purchase a home. Unless there are a plethora of cash buyers, sellers and buyers will become more creative in their negotiations, and concessions may be just that.
From The Trenches
originally posted at: https://southfloridalawblog.com/the-housing-market-is-not-as-bad-as-you-may-think/