The constant barrage of information has overwhelmed buyers and sellers, with many at a standstill as they feel they can’t make any moves in the current market.
Agents everywhere are left with the task of untangling the data and presenting it in a way that is clear for consumers. Fortunately, many industry professionals and economists are also working overtime to make sense of what’s happening in today’s market.
Last week, Redfin released a full Q&A with Taylor Marr, Redfin Deputy Chief Economist, Daryl Fairweather, Redfin Chief Economist, and Chen Zhao, Redfin Economics Research Team Lead. They answered consumers’ most burning questions about today’s rates and home prices and offered advice for those who need to buy or sell.
We compiled some of the answers from Redfin Economists, giving you a starting point when talking to buyers and sellers in your market, so you don’t sound like this:
Home prices haven’t fallen year-over-year yet. When will this happen?
Economists agree that home prices will continue to decelerate over the next year. But whether that deceleration reaches depreciation is a topic of debate. Take a look at the number of analysts forecasting appreciation and depreciation for 2023 from Keeping Current Matters:
Here’s what Taylor Marr had to say:
In the next six to 12 months, prices are likely to fall year over year, possibly by double digits in some areas. They’ll still be higher than pre-pandemic levels, but a lot of homeowners will be unhappy that the value of their home has gone down. Some builders are already offering new homes in bulk to investors at discounted rates of 10% to 15% off what they had hoped to get. They probably planned pricing six months ago, and now those homes are nearing completion and builders are willing to take a loss to get rid of them. Businesses that sell homes, like builders, investors and iBuyers, are much quicker than individual homeowners to react to changes in the market, so this is a sign that home prices more broadly are about to come down.
What’s your advice for prospective homebuyers?
When considering moving in today’s market, the advice is clear: stick to a budget you can afford.
Some people have no choice but to enter the housing market at an inopportune time due to various life circumstances like divorce, death, job relocation or a growing family. For people who are buying a home right now, make sure you don’t stretch your budget. Mortgage rates are high and inflation is causing prices of most other things to rise, too. Ensure you have a pad of savings to cover emergencies and that every dollar isn’t going to your down payment and monthly mortgage payments.
Here’s what I’ve been telling friends. There’s more to the decision than just mortgage rates and where home values are headed. Those things are important, but a lot of other factors–like how long someone plans to stay in a home and their risk tolerance–matter, too. If someone is going to stay in a home for 10 years, it’s unlikely the home will lose value. Seven percent mortgage rates are a tough pill for a lot of people to swallow. But there is a silver lining to high rates: Competition is low and buyers have the opportunity to negotiate with sellers.
Can today’s buyers get away with a lowball offer?
In other words, is this the moment buyers have been waiting for?
Look at homes that have been on the market for 30 or 60 days and consider making a low offer. Not everything is dictated by asking prices; buyers should account for the fact that home values are likely about to decline when determining their offer price.
Who should buy and who should rent in today’s market?
Rent prices have risen rapidly over the past couple of years, with renters spending a large portion of their income on monthly housing costs. So the question is, buy or rent?
House hunters who can pay all cash should consider buying. Mortgage rates don’t matter to them, and they can take advantage of homes sitting longer on the market to negotiate with a seller on price. But for most people, who can’t pay in cash, make sure you consider the local market. There are a few parts of the country, like the Midwest, where prices are generally stable and don’t react as much to larger economic forces….Home values are likely to decline most in pandemic boomtowns like Phoenix, Boise and Austin; prospective buyers in those areas should be more cautious about entering the market right now.
People who plan to stay in a home for 10-plus years are also good candidates to buy. If you’re holding onto a home longterm, the housing market’s ups and downs–and the value of your home going up and down–don’t impact your finances much. If you find your dream home and can afford the current monthly payments, consider going for it. Homes aren’t just about money; they’re also about enjoying where you live.
It nearly always makes more sense to rent if it’s a short-term living arrangement or you need flexibility to move at a moment’s notice. But now renting makes financial sense for a bigger portion of the population. Prospective first-time buyers who don’t have cash for a big down payment may continue renting because they don’t want a huge mortgage and the risk of sinking underwater when a recession is looming. Also consider how you’re putting your money to work: Renting makes more sense if you can put what you would have used for a down payment into another investment that’s likely to grow in value.
Should buyers consider using an adjustable-rate mortgage or a 2-1 buydown instead of a 30-year fixed mortgage to secure a lower rate?
Fortunately, there are options available to buyers looking to purchase with a mortgage. Make sure you educate them on all their options.
Think about your long-term plans. If you’re planning to stay in a home for five years or less, ARMs are a good option. “Adjustable” is in the name, but it is fixed for a handful of years. But if you’re buying a forever home, ARMS are riskier because the rate–and your monthly payment–could go up in five years.
A 2-1 buydown can be a good deal, but do the math before you commit to it. Make sure the amount you’re paying to buy down the first two years of interest payments is worth it. And remember that after two years, you’re responsible for the full loan and interest payment. If you can’t afford the full monthly payment now and you don’t foresee your finances increasing, think twice.
What about taking a high rate now with the hope of refinancing in the future?
The question that spurred the term “Marry the house, date the rate.”
For people hoping to refinance in the future, I do think rates will come down eventually. Historically, most people who purchase a home have been able to refinance for a lower rate within five years, given the decades-long downward trend in interest rates.
Refinancing is expensive. It typically costs 2% to 5% of the value of your loan, which can equal tens of thousands of dollars. Calculate whether eventually refinancing will be worth the interest savings over time.
What’s your advice for prospective sellers?
Just like life circumstances dictate whether now is a good time to buy, the same advice holds true for sellers.
For some homeowners, like retirees downsizing or people moving to a more affordable area, now is still a fine time to sell. It really depends on what stage of life you are in, and whether you are ready to cash out. There are also circumstances where you could wait to sell. Maybe you got a new job that’s bringing you across the country. Consider renting out your home instead of selling right away. You can cash in on high rental demand and wait to sell until prices potentially rise again in a year or two.
If you need to sell now, be open to negotiations, communicate with the buyer’s agent and work with the buyer to get to their ideal monthly mortgage payment. There may be concessions that will make the home you’re selling–and the price you want–attractive to both parties. For example, sellers can consider paying for closing costs and/or helping the buyer buy down the mortgage rate.
If you’re a seller, you’re often also a buyer. Weigh everything together. It’s impossible to time the market perfectly, but one great time to sell and buy is right when mortgage rates start dropping and demand starts coming back. So this could be an opportunity for people who have time and flexibility to watch the market like a hawk and be ready to move when there are signs conditions are changing.
For a complete list of questions and answers, visit redfin.com.