Between volatile interest rates, tech industry layoffs and increasingly scarce housing inventory, it has been a turbulent year in real estate. As fall sneaks in and we begin to look toward the holidays and a fresh start in 2024, it can be easy to overlook what the rest of this year has in store. That’s why the W Report caught up with a few of Windermere’s local leaders to see what insights and advice they had to offer on the housing market for the remainder of the year.
How are interest rates impacting buyer and seller behavior?
Patrick Chinn (PC): High rates have currently slowed down the $1.6M to $2.9M market because those prospective sellers are sitting on 3.5% mortgages. Their financial motivation to move is low. Also, the move-up buyer has somewhat deserted the market in the past six months.
There is a preponderance of first-time homebuyers now who don’t have that same “scar tissue,” or memory of those pandemic-era 3% rates, so they’re all in at 7%. They’re also coming into a market where agents are doing a good job of telling them about the current interest rate landscape with potential seller rate buy-downs or future refinances. The quote that keeps coming up around today’s higher rates is “marry the house and but only date the rate.”
Ultimately, today’s rates have stalled willing move-up buyers, so their own homes are not adding to new inventory. Because the $1.6M home isn’t coming on the market, the $2.5M home isn’t moving either.
As for sellers, the irony about this dearth of homes in the $1.6 to $2.9M category is that when homes in this range come on the market they are being scooped up. Although sellers are uncertain about where to move or how much it might cost them to move, when they do list their homes, they are seeing significant success.
Joe Deasy (JD): It’s a twofold impact. Sellers with 3% mortgages are pausing or delaying voluntary or desired moves to maintain their low rates. They don’t want to switch from a 3% to 7% mortgage rate. Many homeowners move up in price when they do move, so if you’re in a million-dollar house, you’re going to move up by about 20% in price. A 7% interest rate on a mortgage makes a significant impact at that price bracket.
But buyers have also paused. This is because some feel they can’t afford the house they want. However, some buyers are feeling more comfortable with the mortgage rates and are ready to get out of their current situations — this is especially true for those moving out of rentals. You can only put life on hold for so long. Some buyers have made changes to position themselves to move despite higher the rates.
What are some strategies buyers can use to navigate higher interest rates?
JD: There are two strategies that can help: higher down payments and the use of buy-downs. For the latter, temporary 2-3 year buy-downs reduce a buyer’s monthly payment and make it easier to carry higher interest rates. Buyers are negotiating seller concessions in order to fund those buy-downs. For example, the seller contributes $25,000 for the buy-down instead of a price reduction on the listing.
When interest rates fall, they fall quickly. Over the last 50 years, the 10-year treasury and 30-year mortgage have tracked consistently, usually around 1.7%. Mortgage rates are going to drop, we’ve seen a maximum of 3.2% above the 10-year treasury. I predict lower inflation, and rate tracking more in line with the historic pattern once the 10-year treasury drops. It will be a chance for people to refinance for better rates.
Laura Smith (LS): Buyers who are interest rate sensitive will demand creativity. It is important for buyers to discover what creativity is out there — great lenders have options for this. Penrith Home Loans offer a “certified rate protection program” allowing buyers to refinance within three years of their purchase without the added cost of an appraisal or processing fee. This reduction in fees to refinance later is another advantage for buyers to act now, when there is less competition and more potential for a seller concession.
When sellers are open to an offer lower than the list price, the benefit of asking for a seller credit toward an interest rate buy-down might just be a better strategy than a lower asking price.
How do you foresee inventory levels fluctuating for the remainder of the year?
PC: I know from speaking to inspectors, stagers and photographers that there is inventory coming on in the next three weeks. We will have a reasonable amount of things to look at until about November 20. Things will slowly start to ramp down with five to six weeks left in the year, especially when some sellers consider taking their listing off the market for the holidays. But before that we are seeing a decent second half of Q3 and will see a solid first half of Q4 when it comes to added inventory. Essentially right now we are entering the last good run of inventory for the year.
JD: It will be a much lower level than we normally see this time of year. We see a seasonal decline at the end of the year, but overall the count is below the 10-year average because sellers have paused.
LS: We are nowhere close to where we need to be in active listing count on the market. Inventory was an issue well before rates jumped up. On average, people are staying in their homes longer than ever (9+ years — per the National Association of Realtors’ research). With many homeowners enjoying the financial benefits of a sub-3% fixed rate we will see homeowners stay even longer. Just over 70% of mortgages are less than 4% (source: FHFA).
That said, there is always a market — there are always sellers and buyers based on this truism: change is a constant in people’s lives. Change in people’s lives keep the real estate market moving right along.
What should buyers and sellers be doing now if they plan to move in 2024?
PC: If you’re a prospective seller next year, it’s a good time to start on little projects. There is a decent delay currently in finding available contractors. It’s also a good idea to pull title on your home now. Your Windermere broker will, however, tell you that it’s a little early to do a pre-inspection. But I advise sellers to start lining up the little projects so they can be ready when the market starts.
If you’re a prospective buyer in ’24, consider checking your credit, meeting with a lender and getting your financials in order now. If you need to sell in order to buy next year, then my earlier advice applies: start to look at what projects you can do now, especially in September and October while the weather is still decent. We never know when the new year’s market is going to kick into gear, so get in front of it now.
JD: The main thing is to connect and prepare with a full-time professional broker. A Windermere broker can help on either side — getting a home ready for spring market or helping buyers to understand their purchasing power and create a plan they can execute. Prepare for what you can afford, then take the actions you need to achieve those outcomes.
LS: For buyers, look at the big picture and work on strategies to approach this market with your real estate broker and lender as a team. Fall tends to be a good seasonal time to consider a purchase. It appears that buyers remaining in the “now” market have adjusted to the sticker shock of increased rates and have found strategies to counter for this.
For sellers, there is strong demand. If you are on the fence about selling, it’s time to consider and also look closely at a strategy with your real estate broker.
