There is no question that it’s a seller’s market for residential real estate today. The burning questions are: Why? How long will it last? Should sellers sell now? And finally; Should buyers wait to buy? First, it has become a seller’s market because both inventory and interest rates are at historic lows. Either one of those factors alone would drive up prices. Together, they have unleashed a powerhouse seller’s market and an explosion of buyers seeking more personal living space – largely due to the COVID-19 pandemic. With too few homes driving competition, buyers can afford to offer more and bid prices up because it is so cheap to borrow money.
How long will this last? The market may have already started to cool. In the four-week period ending May 30th, pending sales, asking prices, and mortgage applications were all down. The number of offers has cooled off, too.
Many buyers have left the market (if only temporarily) due to the fatigue of being outbid on home after home. Some buyers are saying, “I don’t want to play anymore; this is exhausting and I am afraid of overpaying.” Others are taking a break to enjoy life again with the worst of the pandemic hopefully behind them.
However, they’ll be back because both interest rates and new listings are expected to rise over the next 12 months, which will bring more balance to the market. Additionally, new home building permit applications are up in 2021. And urban housing values in some cities (think: New York City, Los Angeles, and Chicago; but not cities like Miami or Austin) have taken a major hit and will provide new opportunities for homeownership.
So, should sellers sell now if they can? The answer is yes. Real estate professionals cannot fathom a hotter market in 2022 than it has been in 2021. No one is predicting a crash. But the conventional wisdom is that sellers will net more this year than next as more listings hit the market and interest rates begin their steady ascent.
Whether buyers should buy now or wait is not as simple to address. Many buyers mistakenly think that if they wait for the market to cool, they can save more money. But climbing interest rates are the single biggest factor in determining affordability. It is very hard to “out-save” the pace of interest rates.
To illustrate that, for every full point interest rates go up, buying power is decreased by about 10%. So, if a buyer begins looking for a $500,000 home, and rates go up one point during their search, they can now only afford a $450,000 home. It’s difficult to save more than $50,000 that fast. So, waiting is probably ill-advised. For buyers who are taking a mortgage, it is probably better to commit to the search for the right home while rates remain low.
About the Author
Katie Severance is the author of “The Complete Idiot’s Guide to Selling Your Home” and “The Brilliant Home Buyer: 101 Tips For Buying a Home in the New Economy”
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