Is the Worst Over? 4 (Mostly) Bright, New Realities of Buying a Home Today
By Tara Mastroeni
Aug 22, 2022 published on Realtor.com original article can be found here:
The real estate market is changing, and fast. For two long years, we’ve been in a red-hot seller’s market, where home sellers got exactly what they wanted—high home prices, zero strings attached—and often much more.
Now, however, the pendulum is starting to swing back in buyers’ favor. While it’s nowhere near an official buyers’ market, there are signs the market is cooling, sellers are no longer calling all the shots, and buyers have more room for negotiation than they have in the past.
If you’re considering looking for a home in this market, here’s a closer look at what to expect.
Old norm: Almost every market was red-hot
“Potential homebuyers need to understand that all real estate is local,” says Bill Gassett, founder of Maximum Real Estate Exposure in Hopkinton, MA. “The national news headlines don’t necessarily apply to every market around the country. In some areas, it has gone from an extreme seller’s market to one that is more balanced. Other areas of the country, however, have not changed as much.”
As for how to get a handle on what’s happening in your local market, it’s a good idea to check how much homes are selling for, and how quickly, in your neighborhood, which can be done on Realtor.com/local. You should also ask what your real estate agent is noticing, since this pro is intimately up to date on any new fluctuations in the market, and can help clients such as yourself navigate those changes as they search for a home.
Old norm: Home sellers had all the power
In the past, sellers were in the driver’s seat when it came to real estate negotiations. They could ask for what they wanted, get it and then some. But now, a combination of rising interest rates and inventory levels has led the market to even out so there’s more room for negotiation.
“If you’re looking to purchase a home, start by researching recent sales in the area,” says Jennifer Spinelli, founder and CEO of Watson Buys in Denver. “This will give you an idea of what similar homes have sold for and help you determine a fair offer price. You can then use this information as leverage in negotiations with the seller.”
And by “negotiations,” this goes beyond cold, hard cash, particularly in today’s cooling market.
“It’s important to remember that sellers are often motivated by factors other than just money,” Spinelli adds. “So if you’re able to offer a quick closing or flexible terms, you may be able to negotiate a lower purchase price.”
Old norm: Homes will practically sell overnight
The amount of homes on the market—and how long they linger there—can also affect the amount of room you have for negotiation. Typically, the longer a home sits without much interest, the more likely the sellers are to negotiate.
And today, inventory levels have risen by 30.7% over the past year, the largest increase in inventory in the data’s history. And while the average time on the market is still fast at 35 days, recent data shows that timeline lengthening.
From a practical budgeting standpoint, Chuck Vander Stelt, a real estate agent with Listing Leaders in Hobart, IN, says to consider factoring time on the market into your home search, especially if your budget is on the tighter end of the spectrum.
“If you are hunting for a deal, try searching for homes that have been on the market for at least two weeks,” he says. “More homes are staying on the market for a longer period of time. It is those homes where homebuyers will find the most opportunity to negotiate on the purchase price, contingencies, and possibly even getting a closing cost concession.”
Old norm: Mortgage rates were at record lows
Although interest rates are still at historic lows, they are on the rise.
“If you are taking on a mortgage, be prepared for higher costs,” says Danielle Hale, chief economist for Realtor.com®. “At the start of the year, rates were around 3% and by mid-June, they were hovering around 6% before the most recent rate hikes.”
She says buyers can prepare for fluctuations in interest rates by asking their lender to run multiple rate scenarios for them before they even start shopping for a home.
“Get pre-approved before you go shopping. But make sure you understand where rates are today and what that means for your budget, as well as what might happen if rates were to climb another half a percent or so,” she advises. “I like to call this ‘rate-proofing your budget.’ It ensures that you are prepared to adjust if mortgage rates change.”