If higher rates cause buyers to be more discriminating, wouldn’t prices drop to compensate? Not necessarily.
It will mean fewer sales first.
The wealthy are doing just fine, and a little blip or two in rates or prices won’t deter them from buying the top-quality properties. It’s the inferior properties that get punished when the market goes soft.
It’s the perfect storm for a slowdown in sales:
-
Buying season is over.
-
Post-frenzy exhaustion.
-
Higher prices and rates.
-
Over-zealous sellers aren’t satisfied with a home run, they are going for the grand slam, price-wise.
While it seems likely that sales counts will slow the rest of the year, it hasn’t happened yet.
Incredibly, the NSDCC closed sales for August 1-15 are 33% higher this year than in 2012 (154 vs 116), and late-reporters will add to that total.
Those sales had to be helped by the rate-spike in late June as buyers rushed to lock and close. But it can’t continue, can it?
Rich people will still be buying the top-quality properties. But if buyers get more discerning, more properties would be deemed inferior, and slow sales.
Sellers are notorious for responding very slowly, and after the run we have had for the last 12 months, they aren’t going to believe that they missed out….again. Lowering their price would cure the problem, but most sellers would rather pack it in for the year, and be more determined to make a killing next spring when the market “picks up”.
A market slowdown is predicated on buyers being willing to forego an inferior property now, and wait longer for house-perfect.
Rates are rising – they won’t mind waiting longer, right?
But if there might be a new crop of hungry buyers…..emailed to me today:
FHA changed their waiting period guideline on Thursday.
You may now be able to buy a home only one year after foreclosure, short sale or BK if you can prove these events happened as a result of losing your job or severe loss in income.
Here is the FHA mortgagee letter for all of the details:
http://portal.hud.gov/hudportal/documents/huddoc?id=13-26ml.pdf
Everything closing now had a rate lock months ago, so the rise would likely motivate them to follow through.
Meanwhile, I read that Wells is quoting 6.145% APR for FHA 30 year fixed.
A lot depends on how fast the rates go up I think. Sellers with inferior properties who decide to wait for next spring, better hope that a liberal fed chairman(Janet Yellen) gets appointed and keeps the party going.
Keep in mind that the Fed hasn’t actually done anything yet. Simply talking about it has everyone front-running the trade (no doubt to convince them NOT to “taper”).
I think a 10% discount would go a long way in moving some of the prospective buyers who are on the fence to make a move. Prices need to reflect the fact that interest rates are now very close to 5% and they don’t
Agreed, and what is beautiful about that recommendation is the sellers who do discount 10% probably won’t have any trouble finding a buyer – mostly because their price will look low compared to the rest.
A friend of mine has her house listed for $389 and got a $400 cash offer before even doing her open house. This is in a neighborhood where the are a bunch of $400+ turkeys.