Is it a good time to buy a house?
Two important trends seem to indicate that it might be a great time for buyers to find great deals in the current real estate market.
First trend: Price reductions and seller concessions.
In November, close to 20% of all homes for sale were forced to reduce their asking prices to attract buyers. For most of 2022, price reductions have been the norm. The average price reduction was 3% of the original price.
When making an offer, do not lowball the seller to where they might feel offended with your offer, especially if the home checks all the boxes of your needs. Maybe beside price reductions, you can negotiate other concessions.
Acceptable offers are few if any, so sellers are no longer asking buyers to make risky choices like waiving contingencies. (Contingencies are prerequisites that either the buyer or seller have to meet before moving forward with the sale.)
Sellers are also more open to make repairs or renegotiate the price or credits after damages are found during home inspections or the appraisal.
Unless the property is not qualified, sellers are also more receptive to alternative financing other than cash or conventional loans.
FHA loans and VA loans, which are more used by first-time-buyers or people with challenges in their credit and/or income, now have a better chance of getting accepted on an offer.
Before the market changed, sellers were steering away from offers that were not cash or conventional loans.
To get their property sold, sellers are also more willing to pay part of the buyer’s closing costs if not the full amount, or pay money towards buying down the buyer’s interest rate.
Beside the traditional permanent rate-buy-down, which you keep for as long as you have the mortgage, more recently, lenders have designed new programs which reduce the initial rate by up to 3% the first year, 2% the second year, and 1% the third year.
Sellers pay for the temporary rate-buy-down in the form of a credit from the purchase price.
These programs are a great tool to aid buyers with inflation, kind of like a life jacket, until rates come down and they can refinance, inflation slows down, or their finances improve and they can afford a higher payment.
Second trend: Mortgage rates are coming down.
Recent mortgage rates are in a descending trend, possibly indicating that we have seen the peak of the mortgage rate increase. This would be great news for buyers that are ready to buy.
A few weeks back the national average mortgage rate peaked over 7% for conventional loans. We started early this year around 3%. The way rates have risen, is the most direct cause of the slowdown in the real estate market.
The great, rapid increase in the rates has caused many potential buyers to decide to wait for the rates to come back down or the prices of homes to drop.
Recently, the number of new mortgage applications has dropped to an all-time-low in over a decade. But in the last few days the number of new applications has gone up but still below the average.
Last week, Federal Reserve Chair Jerome Powell said that it was time to slow down the pace of coming rate hikes.
Last week, Federal Reserve Chair Jerome Powell said that it was time to slow down the pace of coming rate hikes.
The central bank meets on Dec. 13-14. Economy experts expect a half-point rate increase announcement at these meetings and for policymakers to issue new projections for rates, economic growth, inflation and unemployment in coming years.
The down-shift in rate increase could mean that the mortgage rates settle or decrease and we start to see a higher participation of buyers. This change could also be what reignites the real estate market and we see a new shift away from a buyers market.
If your goal is to own a home, and you think you could qualify now, do not wait too long or you might lose your chance to get a good deal.
Find out what are the first 5 steps to take, if you are thinking of buying a home.