Mortgage rates climbed above 6% last week, according to Bankrate data, with some pros saying they may go higher. (You can see the lowest mortgage rates you may qualify for here.) On top of that, home prices have risen more than 20% year-over-year, causing affordability challenges for many aspiring homebuyers. And it’s likely making them wonder: What should I know if I want to buy a house now? So — as part of our series where we ask prominent real estate industry pros their thoughts on the housing market — we chatted with Steve Reich. He’s the COO of Finance of America Mortgage, a home financing company that says it has funded more than $105 billion in consumer loans since 2015, who has two decades of experience handling mortgage processing, underwriting and more. Here are his thoughts on the housing market now.
Affordability challenges are very real right now
“We saw home price appreciation cool off a bit at the end of last year, but in the first half of 2022 we’ve seen another reacceleration with home prices leaping almost 20% year over year as of February,” says Reich. Experts (like Daryl Fairweather, Redfin’s chief economist, who we also interviewed for this series) have noted that we’re likely reaching a point where this kind of growth can no longer be sustainable, and if that’s the case we may expect home price appreciation to slow down later this year. “Regardless, in the near term, higher home price appreciation will have a significant impact on how many families can afford to purchase or be priced out of the market,” says Reich.
Another thing to keep in mind is that rising rates may add more complications to the affordability issue. “On one hand, I think a fear of missing out on low rates has contributed to some of the price hikes we’re seeing as prospective buyers rush to snag a home and enter bidding wars. Over the long term though, higher rates will hinder some buyers and ultimately put a damper on demand,” says Reich. (You can see the lowest mortgage rates you may qualify for here.)
Homeowners may be hesitant to sell their homes — which may compound already tight housing inventory
Housing inventory is still at record lows. We’re in “prime housing season, when more families tend to put their homes on the market and prepare to move in the summer after the school year,” Reich notes. But, he adds, “there is uncertainty about how much inventory will be available. Indeed, “for some homeowners who locked in rates in the low 2% or 3% range, they may be hesitant to sell their house and look to buy a new home knowing they’ll be paying more in interest rates now,” says Reich.
On the new home construction side, while it’s unclear what the full effects of prolonged inflation will be on the availability of new units moving forward, the residual impact of supply chain issues, labor shortages and fuel price hikes will likely continue to trickle down into new-home construction costs, staffing and other areas of the housing and real estate landscape, according to Reich.
To compete in this tough market, you may need a competitive bid
Given these factors, buyers should be aware that to compete in the current market environment and have your offer accepted, you may need a strong bid. “You may have to get creative: Consider limiting contingencies in your offer if possible and don’t ask for too many credits. Show sellers that you can be more flexible on timeline, for instance, offer to close more quickly or even let the seller do a leaseback agreement if they need more time to move out or find another home,” says Reich. Having a pre-approval letter in hand, a higher down payment and an upfront underwriting can strengthen your offer financially and make you a more compelling buyer.
That said, how competitive an offer needs to be varies from market to market (and of course from house to house) — with some markets far more, and less, competitive than others. Indeed, Redfin’s Fairweather recently told MarketWatch Picks that we’re seeing early signs that the housing market is starting to cool, at least in pricey coastal metros. “Buyers in markets like Los Angeles, San Francisco, Boston and Seattle who have lost out on several bidding wars may find they’re facing less competition from other buyers than they were a month or two ago,” says Fairweather.
Post courtesy of Market Watch