There’s a large-scale shift happening in the real estate market, and it’s happening now — it’s just no one knows what to make of it.
I realize, reading that last sentence, it can sound like one big salacious headline. But when I say this, it’s not in the typical grim real estate news we’ve been reading for nearly two years now.
The story of the residential real estate market is on the cusp of change, and that change we will see will be substantial. The caveat is that it will take two months or so to really see all the shifts taking place around us.
Already, we’re witnessing a couple of movements. The average rate on the popular 30-year fixed mortgage hit 4.72 percent on March 22, according to Mortgage News Daily. As a result of this spike in rates, economists nationwide are now decreasing their home sales forecasts for 2022. April proved once against that rates were on the rise, and May will be no exception.
Homesellers are also notably adjusting their expectations, as reported by a recent CNBC article. Asking prices slipped slightly at the end of March, according to Realtor.com, despite the competitive market, which shows that more and more sellers are becoming aware of buyers’ tightening pockets as mortgage rates climb.
But ultimately, the shift we’re about to see here all comes down to interest rates. Interest rates went from 4 to 4.625 in mere weeks, then dropped to 4.25 before going up again, signifying that we’re on a real roller coaster.
As of May 9, 2022 rates saw another increase and we will have to wait and see how this will impact our late spring market.
The average rate on a 30-year fixed mortgage is 5.60% with an APR of 5.62%, according to Bankrate.com. The 15-year fixed mortgage has an average rate of 4.79% with an APR of 4.83%. On a 30-year jumbo mortgage, the average rate is 5.51% with an APR of 5.53%. The average rate on a 5/1 ARM is 3.78% with an APR of 4.91%.
The case for buying now
I get it. Anyone who is an active agent gets it. We know your dream homes that you Zillow searched for hours are flying off the market in hours, if not days. Homes are selling for over listing price and the inventory remains sparse.
All of this is true, but there’s also one factor buyers aren’t thinking about in today’s housing environment — and that’s to also consider how horrific the rental market is as well.
When a first-time buyer sees the mortgage rising and interest rates fluctuating and initially feels spooked, it’s understandable but what they’re not considering is whether rent is going to change either. A predictable mortgage payment each month not only helps protect you against mounting rental costs, but homeowners typically have a net worth that’s 40 times greater than renters.
Buying, even if you have to start small, is a path to building wealth.
There is ample opportunity for people to buy now because once fervent buyers will start to leave the market when they see interest rates jump. Many experts are saying that though rates will increase, mortgage rates are still at historic lows, even as they increase. Lower rates mean lower monthly payments, and fixed rates don’t change over the life of the loan.
At the end of the day, the real pressure right now is on the rental market. For those who are renters, they’re — for lack of better word — screwed in this moment of time. For renters, simply getting a place is more important than anything else at this point. A lot fewer rentals are available when inventory to buy a house is as low as it continues to be.
So, what should first-time buyers do right now?
Buyers should be on a daily email list of rates and watch those rates religiously to then figure out where the rates are.
Consumer Note: Mortgage rates are impacted by income, down payments, programs, credit score/history, and debt ratios. The rate you see online may not be the rate that is realistic for your purchase.
Take that extra effort to read on why it’s going up and down with oil and inflation so that they can begin to make educated assessments of when rates will fluctuate and when it will be a better time for them to buy.
In addition, buyers should also start to set up realistic game plan for how they’re going to buy and do it. Given that now is actually a better time than it’s been in a while, look at this moment to abide by the adage that anytime there’s a massive shift in the market, there’s opportunity waiting for those who wish to pursue it.