Trying to predict what will happen to our local real estate market in the short-term?
No surprise that mortgage rates will play a big role in how it plays out, and they have been extremely volatile lately. But it’s just not about affordability, and ‘losing’ buyers. They can always recalibrate by either looking at cheaper homes or cough up more down payment if they really need to buy a home. But will they?
The invisible impact on the market will be how buyers expect higher mortgage rates to convince sellers to lower their price. But sellers aren’t very empathetic, and most will go with their retail list price based on the highest comps ever recorded, and hope that cute young couple with 2.2 kids falls in love and just pays what it takes to win it.
If rates miraculously drop back down to 5% and under, then buyers won’t have a good reason to expect better pricing, and they will be tempted to give in and just pay what it takes. But if rates are 6% and higher, they have a rallying cry and the Big Standoff will be on.
How much lower will prices need to be to satisfy those buyers? They probably won’t have a number in mind, and the answer will just be ‘less’. It will likely end up being a binary decision – either rates are low enough that we’ll just go ahead and pay these prices, or we won’t.
When the bigger challenge is to find the right house, it will be most interesting to see if the superior homes – the real creampuffs – sit for long, or if they blow out to cash buyers or to those who care more about getting the right house, than the right mortgage rate.
If there is a steady trend of creampuffs selling, it will help to get more buyers to engage.
The one thing that’s not being accounted for is when theres an expectation for prices to go up buyers will jump through hoops to buy. However when theres an expectation for prices to go down buyers will try to avoid buying.
You’re already starting to see it in buyers walking b/c of distant powerlines or some interior wall not being the perfect shade of fuchsia.
This is because buyers think something better will become available the longer they wait.
None of this matters if foreclosures arent happening. When “owners” aren’t making payments for years at a time + not being evicted what will happen is prices will plateau and stay the same for years until salaries catch up with inflation.