Are Buyers in the Driver’s Seat Again? And What That Could Mean For You
Have you been browsing real estate listings, driving by homes for sale, or even visiting open houses with the dream of becoming a homeowner? If you’ve been putting off buying a home in the uncertain economic landscape, now may be the time you’ve been waiting for. After years of a seller’s market where it was difficult and sometimes impossible for buyers to find their dream home, the trend is shifting in the buyers’ favor. A local Realtor can help you navigate these trends and find the right home.
Why Now is the Time to Buy
Home buyers may be aware that the Fed keeps increasing interest rates, which reduces affordability. What they may not realize, is that some changes in the housing market are beneficial to them. After a couple of years where homes went off the market just days or even hours after being listed, they are now sitting on the market longer. Instead of selling in days or a couple of weeks, it's not uncommon for homes to stay on the market for more than a month.
With it taking longer for properties to sell, it leads to sellers lowering the price. Price reductions help out buyers who may have a tight budget. Rising prices have made everyone’s budgets tighter, which can mean that homeowners may decide to sell if they have more home than they can comfortably afford. More homes on the market also lowers the prices, benefiting buyers.
Mortgage rates have reached the 6% mark and above for the first time since 2008. With higher rates, buying a home today is often less appealing and more expensive than a couple of years ago. This leads to fewer buyers feeling confident in making a significant investment now, knowing that a recession could lead to job loss and even tighter finances. If you're hesitant about what the economy may bring, you may want to consider a smaller home, or buying in a different neighborhood than what you originally had in mind.
More Options for Buying a Home
If you’re one of the home buyers looking for a property amid economic uncertainty, you’ll be happy to know that options exist to help you get into a new home you can afford. More buyers are turning to adjustable-rate mortgages to lower their monthly payments and qualify for more homes.
An adjustable-rate mortgage (ARM) allows you to get into a home at a lower interest rate than a fixed interest rate mortgage. Adjustable-rate mortgages charge a lower interest rate now than fixed loans, with the ability to change the rate in a specific time period. For instance, a 5/1 ARM means that in five years, the interest rate will adjust to whatever is current at that time.
Buyers can benefit from an ARM in today’s market because it increases their buying power. If the interest rates go down in five years, or whenever the rates on an ARM adjust, the buyer will lower their payments.
Another option for home buyers in today’s economy is the 2-1 Buy Down. This type of loan allows you to pay a lower interest rate now than current mortgage rates, raising it some in the next year, and getting to the final rate in the third and future years. Sellers and developers will often pay for a buy-down to entice buyers to make an offer.
Ways to Reduce the Cost of Buying a Home
You don’t have to let the rising interest rates keep you from buying a home now if you’re ready. You can take steps to make it easier to get an affordable loan. For example, make sure you have excellent credit to get the best interest rates. Come up with a larger down payment to reduce the interest rate on your mortgage. Because you’re assuming more risk, lenders may be willing to negotiate.
Fewer buyers are willing to waive contingencies, such as not having a home inspection or appraisal. Sellers also set up contingencies, such as having financing in place before putting in an offer. In turn, this limits the pool of buyers competing for the same property, as well as levels the field for all buyers.
You also still have the option of paying mortgage points to lower the rate. Lenders often offer the option of paying these mortgage points to make loans more affordable. For each point you pay to the lender, the interest rate goes down by one percent. If you plan to live in the home for a long time, this extra cost may pay off in the long run.
If you’re a first-time buyer, you have access to various first-time buyer programs. These programs provide you with assistance for your down payment. Many lenders offer first-time-homebuyer programs and incentives, and the City of Columbia offers a program for buyers who meet income requirements and are purchasing a home within City limits.
Homebuyers can take advantage of the changes in the market if they are willing to adjust their expectations. Real estate is local. We are here to guide you through what our mid-Missouri market is seeing at the moment, and make finding and securing your next home a seamless transition!
We're Here to Help
The key to buying is to be prepared and know which tools you want to utilize to make your home purchase more affordable. We'd love to help you decide if now is the time to begin the home-buying process.