The Supply and Demand of the housing market and how it affects home values
In todays economy we face rising prices on nearly every service and consumer good. From the small purchases of haircuts to groceries all the way to large purchases like cars it’s easy to feel like we’re getting nickel and dime’d as consumers. And the truth is, we’re not wrong!
Prices of almost everything have gone up exponentially in the last 5 years and we’re still facing high inflation and even higher interest rates. High interest rates have a profound effect on how consumers spend their money and make large financial decisions, especially when buying a home.
In previous Blogs I’ve discussed the effect of interest rates on housing purchases and affordability. We’ve discussed how a single point increase in interest rates can increase a mortgage payment by hundreds of dollars. Because of this, consumers must re-evaluate their expenses and desired budget range when buying a home. Sellers also must evaluate their pricing strategy as overpricing a home can be absolutely detrimental to the success of the listing and the sale.
We’ve been in a sellers’ market for nearly 10 straight years with buyers outpacing sellers at a considerable rate. During the peak of Covid, we had approximately 8-10 buyers for every home that was on the market. The subsequent effect is the home sales price skyrocketing because of the competitiveness of the market. Today however, we’ve entered one of the first Buyers markets we’ve seen in over a decade.
A buyers’ market is defined by having more sellers than available buyers and therefore buyers have the leverage, and the choice, of what house they want to buy. In previous years buyers have been stuck with minimal options, hurting their negotiation power. Today, buyers have upwards of 5-7 homes to look at and compare against each other, giving them the leverage in the market.
So, if we’re in a buyers’ market today, why aren’t more buyers buying? Interest rates.
With interest rates as high as they are, a lot of buyers simply can’t afford to purchase a home. While interest rates remain high this can’t change and that drives sellers to reduce their prices to try and make things more affordable for a buyer. But, what happens when interest rates eventually come down?
When interest rates drop, we’ll likely see an increase in buyer activity, which means increased competition. A lot of buyers I talk to right now are waiting for exactly this, but in my opinion, this is the WORST OPTION.
As a buyer you want to be the one with the leverage and controlling the negotiation. If you don’t have competition, this can be very easy to do. But, if your competition increases you’re putting the leverage and decision-making power back in the sellers’ hands.
I work with both buyers and sellers and have helped both make the best financial decisions for themselves both in the short and long term. If you’re a buyer and you’re seriously considering waiting to buy a home next year you might want to consider the opportunity available if you start searching now. You can get ahead of the competition and leverage your power in the negotiation and likely get a seller credit for an interest rate or closing cost buy down, or both. This can help reduce your monthly expenditures for the near future and then you can leverage a refinance when interest rates inevitably drop in the coming year(s).
If you’re thinking about buying or selling your home, give me a call at 980-250-2795 or shoot me an email at matt@briggsamerican.com and I’ll be happy to run through our strategies to get you the best deal!