While collecting my thoughts to write this blog, my mind went in several directions. It’s easy to do right now because there are several ways to look at the real estate market. I’m going to focus specifically on the Sacramento real estate market and buyers. Don’t worry, my next blog will focus on sellers. They are an important part of this as well.
Anyone that has been paying attention to the real estate market knows that we have seen some changes. We went from red hot to tepid in a matter of months. For the past two years and up until early this year, we could put a home on the market and over the weekend garner multiple offers. Although it was great, it left many buyers out in the cold. Several buyers were getting beat up because they just couldn't compete. With a listing getting anywhere from 5 to 10 offers over the weekend, serious buyers really needed to step up. Stiff competition with buyers who were able to go way over the asking price really effected the market. It wasn’t uncommon to hear of buyers that had put in offers for 5 or more homes. Talk about an emotional roller coaster. Not only were buyers willing to go over asking price, but several were also willing to remove any inspection contingencies and buy the home as-is. If you aren’t handy and don’t know a lot about homes and fixing them up, this was quite intimidating. If this reads like a page out of your life, now may be a great time to buy.
These two hurdles have been effectively eliminated. There are less buyers looking and sellers are now willing to do repairs or offer credits just to get buyers into contract. It’s crazy to see how quickly things changed. Here's why.
Interest rate increases have single handedly shifted our market. The increases have sidelined many prospective buyers. We need to sit back and really look at where we have been to see where we are going. It took a global pandemic and everything shutting down to get interest rates to go below 3%. The last couple of years should really be looked at as an anomaly. Will interest rates go down again? I’m betting they will. Will they go down to the historic lows we just lived through? Barring another big disaster, I don’t think so.
While the current rates are high, there are ways to help stem the increase in monthly payments. Lenders have had to really get creative with what they can do to get payments down, because let’s be honest, buyers are really interested in what their monthly payments will be. Without getting too much into the weeds, here is an example of a program that is currently available. A buyer can request a credit from the seller that can help buy down their interest rate by 2 percentage points the first year and 1 percentage point the second year. It is a great solution to the sticker shock many buyers have when they see their monthly payments. Specific lenders offer this program and if you want to know more, please feel free to reach out to me. I’m always happy to help.
Buyers also have the option of buying down their rate. This option has become very expensive. The reason it is so expensive is because when a buyer buys down their rate, they must buy it down for the whole term of the loan which is normally 30 years.
Even with rates on the rise, I still think it is a good time to buy. Current projections are that interest rates are going to continue to go up. What buyers are baulking at right now could be a dream interest rate in the not so near future. We do expect rates to eventually go down. Here is the caveat to that though. When the rates go down, the buying pool will increase.
There is more inventory on the market than we have seen in three years. This gives you, the buyer more options. With little competition, it really helps you negotiate a deal that will work for you. Sellers are willing to do things to keep a buyer interested in their home.
I would encourage you to talk to a lender if you have been considering buying. Get pre-qualified so you can see what you can buy and ever more importantly, what you can afford. The process is free. Go into it knowing there are programs out there that could help you have even more buying power. Once you’re pre-approved, the real fun begins. We go shopping. The beauty of Sacramento is that we have a vast selection of homes and prices. The shift is the market has made for some challenges but if you have an agent willing to put in the work, it can still be rewarding.
People ask all the time if the market is going to crash. I think most people’s point of reference to a crash is what happened in 2008. I’m not psychic, but from everything I see, we aren’t headed in that direction. To put some context on why 2008 happened, lenders were giving loans to people who by today’s lending standards wouldn’t qualify for them. The lending practices have become much stricter to protect the consumer in the long run. I’m in the business of helping people’s dreams of home ownership become a reality, not a nightmare like many faced after the last downturn. That downturn was also spurred on by a glut of inventory. We currently have a housing shortage. That shortage has driven up the cost to rent. If you are a renter and you are facing a rent increase, this might be a great time to see what kind of buying power you have. You might be surprised.
If you are a potential buyer stuck on the fact that interest rates are so high, remember, the house is the long-term asset, the rate is temporary. You may feel your buying power has diminished, but your negotiating power with a seller has vastly improved. Find the house, get the credit or repairs, make the payments for a few months and when the rate goes down, refinance. Once the rates really start to go down, we will see a flood of buyers again. Then you will be out competing with everyone and giving up a lot of the negotiating power you now have. It’s the circle of real estate life. You’re buying an asset that you get to live in and enjoy while it is helping build your wealth. Don’t let the higher rate blind you from that.
If you have any questions, please feel free to reach out.
Real Estate Reinvented