Redfin Economists Share Advice for People Who Need to Move While Housing Costs Remain Near Record Highs
Many prospective buyers and sellers have retreated to the sidelines as mortgage rates near 7% and home prices remain high, sending sales and new listings down. But for those who need to move now, Redfin economists give tips on buying and selling in the current economic landscape.
SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) —Home sales and listings are pulling back even further this fall than they were over the summer as mortgage rates continue their upward march and widespread economic volatility leaves would-be homebuyers and sellers rethinking their plans. In a new Q&A from Redfin (redfin.com), the technology-powered real estate brokerage, three of Redfin’s economists share insights about the state of the housing market, geared toward those who remain in the market.
Mortgage rates have more than doubled over the last 12 months. Why haven’t home prices fallen year over year?
Taylor Marr, Redfin Deputy Chief Economist: There are two main reasons home prices haven’t dropped year over year. One is that supply has fallen in tandem with demand, and the other is that home-sale price data lags a few months behind what’s happening in the market in real time.
Daryl Fairweather, Redfin Chief Economist: Today’s buyers will become price data points in two to three months. If you put in an offer on a home today, the sale will close in 30 to 60 days, then it’ll take another few weeks to show up in the data.
TM: Pricing is very nuanced right now, though. Even if we could track sale prices in real time, they still wouldn’t be falling as much as we would expect. Home sales are down more than 30% from a year ago, but new listings are down almost 20% because prospective sellers are spooked by high mortgage rates, too, and a lot of them are staying put. The pullback in supply is keeping upward pressure on prices.
What’s your advice for prospective homebuyers? Should they hold off and hope prices and mortgage rates come down, or swoop in now before rates potentially climb higher?
DF: Some people have no choice but to enter the housing market at an inopportune time due to various unexpected life circumstances. 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.
TM: 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? What are your other tips for negotiating with sellers?
TM: 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.
Say you’re comfortable paying $475,000 for a home. If you believe home prices will decline by 5% in the next year, price that into your negotiations. Offer $475,000 on a $500,000 listing. When prices were soaring at the height of the pandemic and expected to grow 10% year over year, buyers often priced that into offering over asking price, and it also works the other way around. Also consider asking sellers to help buy down your mortgage rate, which would mitigate some of the impact of higher rates.
So who should buy a home right now? Who should rent?
DF: 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. There’s a low chance of home values declining significantly in a place like Chicago or upstate New York, so buying in those places is less risky right now. 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.
Chen Zhao, Redfin Economics Research Team Lead: 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.
What’s your advice for prospective sellers? Should they wait to list until mortgage rates drop?
DF: 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.
TM: 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.
CZ: 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.
To view the full Q&A, which includes several other questions and answers, please visit: https://www.redfin.com/news/economist-faq-advice-sellers-buyers-high-rates
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Released October 26, 2022