Homebuyers Acting Now Can Save Thousands, Despite Rising Rates

How Savvy Homebuyers Making a Move Now Can Literally Save Thousands in Homebuying Costs, vs. Waiting Out the Market

Are you a would be homebuyer, if only mortgage interest rates weren't on the rise? Read on for explanation on why you shouldn't wait & 5 steps you can take right now to buy a home and save yourself thousands on the front end. #marketshift #actnow #leverageyourbuyingpower #savethousands #refinancelater

How the housing market changed going into the later half of 2022. The real estate boom of the past few years, attributed to record low mortgage interest rates, enters a defrost. Borrowers' buying power declines due to recent rise in rates, combined with inflation of home prices.

The central bank of U.S. monetary policy (Federal Reserve) began taking steps in early 2022 to curb inflation. A rise in mortgage interest rates soon followed, reaching the highest levels in recent years. The pool of homebuyers has diminished, resulting in a paradigm shift. It's no longer business as usual for home sellers. Re-sale and new construction homes are experiencing a marked increase in days on market. This is good news for prospective buyers who are still in a position to buy. Buyers shopping now have leverage that US homebuyers haven't experienced in many years. For the most part, 'sight unseen' sales, contracts executed within hours of a home hitting the market, waiver of contingencies, and offers above list price are no longer the norm.

"Per the National Association of Realtors® (NAR), as of August, supply of inventory level (US nationwide) rose to 3.2 months, up from 2.5 months in August, 2021." – Realtor® Magazine, 'Existing Home Sales Slip Again, Yun Blames Mortgage Rates' (Article by Melissa Dittman Tracey, published 9/21/2022)

Some consumers feel compelled to postpone homebuying, and other big ticket items, until interest rates decline. Yet waiting to buy a home will ultimately cost homebuyers thousands more in upfront costs. There are a number of reasons why. For starters, once rates decline, more shoppers will return to the marketplace. Buyer competition will once again fuel a rise in home prices, along with with the return of exorbitant up front due diligence fees (or earnest money) to win bids. Sellers won't be as eager to make financial concessions. In the next highly competitive housing market, buyers without access to significant cash on hand (15-20% of a home's purchase price) simply won't be able to compete to win a home. Buyers who make a move now will have significantly more leverage (vs. sellers) in real estate transactions than at any time during the past 10 years. In the current market environment leading into 2023, many buyers will be able to get into a home with significantly less upfront cash than in prior years. Another consequence of waiting out the market is escalation of rent prices. And there's no home equity, or tax benefits for tenants, just the landlords.

So, what steps can prospective buyers take to seize the opportunity to buy now vs. later?

Step #1 - Employ the services of an experienced Realtor®.

Now more than ever, homebuyers need a licensed real estate agent to guide them through the buying process. Don't personally know a real estate professional? Ask a friend or family member for a referral. Choose an experienced buyer's agent who understands the dynamics of the changing marketplace and has local resources to navigate you through the process. This includes making recommendations for a mortgage lender.

Step #2 - Talk with a lender to get pre-approval.

Although the cost of borrowing is on the rise, mortgage lenders still have money to lend. A good lender will offer creative solutions to structure loan products so that borrowers can garner loan approval, along with a house payment that fits within their budget. Ask your chosen lender about options to buy down the loan's interest rate (up front) to make the payment more palatable. If you don't have access to cash to pay points to buy down the rate; or if your "break even" point on the upfront interest payment doesn't suit you, perhaps an adjustable rate mortgage (ARM) could be an alternative consideration. Moving into 2023, expect sellers to be willing to contribute toward buyer closing costs, in order to put together contracts. Your lender will advise you and your buyer's agent on how much seller financial assistance is permissible for your individual loan product.

Step #3 - Negotiate price or seller paid concessions.

If you have ample cash on hand for down payment and closing costs, you may prefer to negotiate with the seller on sales price or other concessions. If you need seller assistance to help "buy down" the loan's interest rate, discuss offer strategies with your buyer's agent and lender. It may behoove you to offer to pay the seller's full asking price, or slightly above, so that the seller is amicable to contributing toward your closing costs. In this scenario, the win-win result is borrower access to additional funds to go toward loan expenses (from seller proceeds at Closing); and the seller gets the house sold in a timely manner.

Step #4 - Shop and buy now while less competition.

Buying when there's less competition usually requires less cash out of pocket (from you) for your down payment. Plus the stress of competing with hundreds (thousands) of other buyers in the marketplace has become a non-issue, for the time being. During the two years leading up to June 2022, it was the norm for a listing to receive 10-15+ offers, within hours of market activation. This led to unprecedented home price inflation. Winning bidders were paying thousands up front to win a house; thousands over list price; and thousands in additional down payment, to cover gaps between contract purchase price and appraisal value. Navigating the lending aspect in the form of rate buy down, or an ARM, is much less stressful than arm wrestling the competition on the front lawn of a property. Not to mention repeated buyer disappointment after placing bids on dozens of homes, before actually winning one, or giving up completely.

Step #5 - Buy now, then refinance later when rates improve.

Whether your lender gets you into a fixed rate, or adjustable rate, make the necessary moves to buy now while there's less buyer competition, prices are stable, and sellers are willing to negotiate. Get a rate you can live with now, before they go higher. Then once interest rates come back down (and they will) you can refinance the loan with a rate that better suits you. Don't postpone buying until rates come down. Doing so will cost you thousands more later, combined with the added stress of too many buyers, not enough houses.

Homeownership remains key to building financial wealth.

Homeownership is more than the realization of the American dream, it's a step toward future financial independence. Even as interest rates rise, there's still opportunity for prospective buyers to make a move. The market has shifted. Home sellers no longer hold all the power in a real estate transaction. Act now on the 5 steps above to take advantage of the recent shift, so that you as a buyer can get into a new home, sooner than later. You'll save thousands buying now vs. waiting!

About the Author: Troy Grimes is an actively licensed NC real estate broker, and the principal Member-Manager, and Broker-in-Charge, of Troy Grimes Realty LLC. His firm specializes in general brokerage home sales in the greater Raleigh, NC region & surrounding areas. An alum of East Carolina University, with a background in luxury retail sales, Troy's recent blogs offer expert editorials on the housing market, consumer behaviors, and related anecdotes. You may connect with Troy on social media including LinkedIn, Facebook & Instagram @TroyGrimesRealtor, or email him at homes@troygrimes.com