As a real estate agent, I’ve been tempted to advise my clients to put off purchasing until the market begins to balance itself out. Seems reasonable, right? With vaccinations rolling out and COVID-19 on the ropes, the inventory of houses should increase and everything will go back to normal, right? After taking a step back and seeing the bigger picture, that may not be the case.
First, interest rates are no longer dropping. In fact, they are making small incremental increases. On the latest The Level Up with GNO Realty Podcast we mentioned that a small increase in interest rates will greatly diminish a buyer’s negotiating power.
An article by MyMortgageInsider.com claims that a 1% increase in interest rates decreases buying power by 11%! Therefore, even if rates are increasing by a fraction of a percent, it is still having a noticeable effect on buyer's purchasing power.
"The simple truth is that if rates go up, you will qualify for less of a home. The 11% shift in buying power is often the difference between an extra bedroom or an older home versus a newer one." - MyMortgageInsider.com
So what are interest rates traditionally? Check out Freddie Mac's Monthly Average Commitment Rate And Points On 30-Year Fixed-Rate Mortgages Since 1971 to see the historical data. As these rates return to historical norms, buyer's purchasing power is greatly diminished, especially if prices remain the way they are now.
Secondly, there's a good chance the spring rush is going to happen, and competition is going to increase. Traditionally spring is a busy time for home buyers. Families will often try to time the transition into a new home around the school year. Take a look at the graph below. The peak of new listings is traditionally in the spring. Even in 2020, the real estate market saw a bounce-back after an unprecedented spring dip (no doubt pandemic related).
So what is the best course of action for someone looking to purchase a home? Working with a realtor and letting them know the specific needs and wants will answer that question. If the buyer is looking to get into a new home before the end of their current rental agreement, they may be willing to explore different parts of town. Perhaps they are beginning a new job? If time is not of the essence, buyers may be more inclined to be patient and see many properties until one truly speaks to them.
Either way, buyers will want to begin the buying process sooner to get ahead of your competition (other buyers). Know that the process could take longer, but with the right real estate team, buyers should still able to purchase the home they've been searching for at a great value.
For more information, Chuck Stall can be contacted at 504-432-0263 or via email at email@example.com