As mortgage rates surge above 7% it can be very easy to dismiss thinking about purchasing a home right now. The numbers are definitely bigger than they were before, however the competition has definitely died down a little, for now.
Sellers and buyers alike are sitting on the sidelines. We have been told time and time again that if mortgage rates get closer to 5% that is when a lot of people will get off the sidelines and get into the game.
So, if less people are in the game right now, and they are going to get into the game when rates are closer to 5%, what does that mean? Here is what I think will happen in the Richmond, VA market:
- More buyers will get back into the market, which means more offers on homes. If rates go down, we will be going from two or three offers on homes, back to 10 plus offers on homes. Maybe 10 is aggressive to think about, but it depends on where the home is and what kind of condition it is in. Even with rates over 7%, homes in The Fan and Museum District are seeing 9 and 10 offers with no inspections or appraisals. Million-dollar plus homes in the Near West End are seeing multiple offers. And that sweet spot between $300,000 and $500,000, you guessed it, still seeing multiple offers. So, let's say rates go down to 5%. It is less expensive for the monthly payment on those homes at the LIST price, however the price that the home is eventually going to go for will more than likely be significantly higher. This means the payments will be similar to what they are today at 7% interest rates, and you, the buyer, are still left without a home. How do you combat this? You purchase now, date your current interest rate, and when everyone is fighting over homes this time next year, you will already have your home, and will be refinancing close to the rate that 30 year mortgages are going for.
- More homes will hit the market. I think the statistic is that 90% of homeowners have an interest rate lower than the current mortgage rate. That's a wild stat. So, it makes sense that people may be sitting on their homes right now, waiting for rates to go down to justify selling their home. This is a tough situation to decipher. And my advice would be that if you are not in love with where you live and would like to move, you should actively be searching for your next home. Go out and get pre-approved. These days you never know when the perfect house may come along. As someone who has had this happen before, being able to swing for the fences on a house you are qualified for feels a lot better than missing an opportunity to even get into the game. This may sound difficult or scary, but it's really not in the grand scheme of things. If you need the money from your current home to qualify, listing first then getting a leaseback agreement is one of the best ways to go after your next home. That way you do not have to be contingent on a home sale to make everything work. If you are a little nervous about selling your home and trying to find out where to live afterwards, there are other options as well. You can write an offer on your new home and use tools such as bridge loans, home sale contingencies, and kick-out clauses in order to qualify for the next home. Long story short, there are ways to get into your new home, while trying to figure out how to sell your current home, and what your living situation will be like after.
- Prices are going to go up. We briefly touched on this in number one, but it needs to be reemphasized. The advice everyone is being given is to hang tight and not purchase until interest rates go down. Key word: EVERYONE. If you are financially capable of handling the monthly payment at 7% interest rates until you are able to refinance, right now is the best time to be looking for a home. How expensive do you think that home you saw last weekend will be 6 months from now? 12 months? 18 months? Sure, markets have their cycles, but this one has eluded all of the "expert's" opinions.
It's kind of funny, people in the industry have been calling the last couple of months a "mini housing recession". I'm not sure I would agree, at least for our market in Richmond. We have so much going for us here, from Fortune 500 companies calling it home (Altria, Carmax, Dominion, Markel), amazing cuisine, proximity to nature, convenience to both the mountains and the ocean, the list goes on and on. We are lucky to be in a market that is somewhat sheltered from the problems other markets are facing. If you ever need help trying to navigate the Central Virginia market, feel free to send me a message. Now more than ever, communication is key.
