Buyers are Regaining Their Buying Power

For most people, buying a home is uncompromisingly personal. It’s where you will live, perhaps raise a family and start a family legacy.

Over the past few years, buying a home has almost become a traumatic experience. Imagine the young couple finally finding their dream home, scrimp and save, get qualified for a mortgage and place that offer. Only to get their hopes and dreams dashed by an all-cash buyer who wants the house almost as another trophy on the shelf.

That’s the disturbance of a lopsided market.

As we know markets always look to find equilibrium or balance if you will. That means the tide will ultimately turn from a seller’s market to a buyers’ market as the pendulum of the price and inventory swings back and forth. 

It’s Coming Back Baby!

As a quick refresher, a buyer’s market is when there’s a surplus of homes for sale and a shortage of buyer demand.

Buyers can leverage conditions to their advantage and negotiate lower sale prices or sellers may need to offer incentives and perks like pay a year of taxes, cover closing costs, or pay one year of HOA fees to attract buyers.

The buyer’s market is not back yet — but buyers are regaining control and the tide is turning. Let’s look at the signs.

As the Market Turns

According to the Case-Shiller national home price index, prices are 43% higher than they were at the start of 2020. However the supply of homes for sale is growing, up 27% at the start of September compared with the same time a year ago, according to Realtor.com.

The inventory climb is even more pronounced on this Housing Supply chart from 1965 to present. You can see the massive dip in 2020 due to the pandemic, and since that time supply took a massive jump up.

Now, mortgage rates are approaching 7%, and as of April 2022 home prices started leveling and appear to be slowly coming back down. You see that below on the Federal Reserve Economic Data (FRED) chart.

The National Association of Realtors said the median price of an existing home in the U.S. was $389,500 in August, down from $403,800 the previous month. 

Redfin reported that Sun Belt home buyers are cancelling their home-purchase agreements at the highest rate as compared to the rest of the nation. If that doesn’t sound like the tide is turning, consider this:

44% of 107 economists and housing experts polled by real-estate company Zillow expect the U.S. housing market to shift in favor of home buyers by the end of 2023. And an amazing 12% of these experts believed that shift could happen this year.

Let’s Look at the Numbers Again

According to the Realtor.com September 2022 Monthly Housing Market Trends Report.

• The national inventory of active listings increased by 26.9% over last year.
• The total inventory of unsold homes, including pending listings, increased by just 0.7% year-over-year due to a decline in pending inventory (-23.7%).
• Sellers are less active than last year, as newly listed homes declined by 9.8% on a year-over-year basis.
• The median list price grew by 13.9% in September, a deceleration from recent highs.
• Time on market was 50 days, 7 days more than last year but 18 days less than typical pre-pandemic levels.

So we can see things are starting to move in the other direction. Listings are way up, unsold inventory is creeping up, median price growth is decelerating, and time on market is up.

While this is not screaming look out below, this could be showing the red-hot sellers’ market is cooling down. And like we said earlier in the article, the real estate overshoots balance due to the emotional nature of the home purchase.

Renters Are Getting Squeezed

You may be thinking about renting until the market bottoms. Well, that may not be a wise financial decision and here’s why. 

Rents are outpacing inflation. So as a renter you’re on the opposite side of the equation. According to Zillow, rent growth will outpace inflation, stocks, and home values, over the next 12 months.

That’s a double dinger. Not only is your paycheck getting hit by higher cost of living prices, add higher than inflation rent prices!

The Dallas Federal Reserve expects rent inflation to accelerate then moderate in mid-2023. Or in plain language, the squeeze is on.

Buy Now or Later?

Let’s look at this from the average person’s point of view. The person looking to buy a home for their family, not as an investment.

We will examine two scenarios. One buying a home now at $500,000 and the other waiting for the price to drop 10% to $450,000.

In scenario #1 we are buying right now at $500,000 with a 30-year fixed mortgage at 6%. That’s a $400,000 (20% down payment) with a monthly payment of $2,727 and a 30-year cost of $863,483.

In scenario #2 you wait a year and pick up that same house for $450,000 but now the mortgage rates are 8%. That’s $450,000 (20% down payment) with a monthly payment of $2,937 and a 30-year cost of $951,584.

By waiting a year, you saved $50,000 on the purchase price, BUT your monthly payment went UP by $210 or 7.7%. And your total cost of ownership jumped by $88,101.

That’s a loss of over $30k, not to mention the money spent on rent while waiting.

You see, while a low interest rate environment causes prices to rise in the short term, higher interest rates cause more money to come out of your pocket long-term.

In this case spending more now saves you later. Don’t snooze.

As always if you want to run the numbers and see where you stand right now. Contact an Embrace Home Loans® professional and we’ll work with you to make sure you get the program that fits your needs.