As the U.S. real estate market cools, many homeowners are wondering whether they should jump into today’s market quickly – wait for a rebound… And if you decide to outlast this downturn, how long might the wait be? A lot of people feel like the real estate market must inevitably be heading for a crash. Some will say that “with the mortgage rates rising I will wait until the rates come down”. But keep in mind there is a lot more room for rates to increase than decrease. When I started in this industry the rates were in the 12’s and have been through all of the ups and downs. It took 15 years for rates to drop from the 6% range down to 3% and historically 6% is actually GOOD.
Competition to purchase homes is still intense in many areas and supply chain issue and labor shortages are still plaguing home construction. Despite this potential short-term volatility, the fundamentals of today’s housing market are still strong. Fear of the repeat housing bubble burst in 2006-2007 many experts are stating that is unlikely to replay because during that period, the housing supply far exceeded demand. It might not feel like this with the news but housing market is much more reasonable and demand far exceeds supply. This is a period of what experts are stating “Market Adjustment and/or Market Correction”.
Did you also know that renters actually have a harder time in inflationary period? Rents tend to rise along with inflation, whereas mortgage rates stay the same for homeowners. Rent growth is predicted to outpace home sales price growth in 2022, and in some markets, renting may become the less-affordable option.
I always tell my clients that first and foremost they should consider their needs and goals. “what is their comfort level on their mortgage payment” What is the long term goal? When making a mortgage decision you need to consider the use of the property primary residence, vacation and/or conversion to investment home? This should shape your decisions on what kind of product is needed and what fits your needs. Here are some key take points when you are thinking of purchasing:
Pricing adjustments and comparisons—Buyers should look hard at supposed bargains right now. Markdowns and comparisons to recent sales (in the last six to 12 months) may be no bargain but instead a sign that the initial asking price or local market were inflated.
Local expertise—Given that pricing a property for sale is tricky in today’s softening market, sellers should be sure to work with a seasoned realtor who knows the local market and luxury space. They also might have to be flexible when negotiating final terms.
Mortgage structure—When valuations are lowering and interest rates have risen, buyers may want to more carefully consider the size of their down payments (to maintain sufficient equity) and determine whether a fixed-interest and/or adjustable rate makes more sense. If you are planning to live in the property less than 10 years you should think about the adjustable rate.
Any questions specific to your personal situation can be directed to Jackie. She can be reached by email at jackie.chong@huntington.com