Where Did the Buyers Go?
My team is fortunate enough to work with some phenomenal real estate agents. I'd argue we've been privileged to work with some of the very best in the country, and certainly some of the best in given markets. And while most real estate is extremely local, one common phenomenon we're seeing nationwide is the "disappearance" of buyers.
Well, buyers haven't "disappeared", but the feasibility of buying has disappeared for many as a result of the current market. Just this week, the Case-Shiller home value index was released for April, pointing to a continuation of immense home appreciation - 20%+ nationwide, with a 2.1% monthly increase (% varies locally, these are national numbers). At the same time, interest rates on mortgages have continued to climb, now sitting in the high 5-low 6% range for most mortgage products, even higher for others.
At the same time, we see rents skyrocketing nationwide, creating a major dilemma for potential home buyers. They know (because we scream it from the mountain top) that buying is a smarter move long term, but despite insane rent increases, they also see lower up front price tags for renting. A small security deposit VS a larger down payment. A monthly payment lower than a mortgage payment that includes taxes, insurance, potentially PMI, and upkeep costs. The graphic below illustrates the $1500/month difference in savings rent offers VS buying, and the nearly half million dollar longer term advantage of buying.
As rates have increased, they've had a large effect on buying power, and for buyers who haven't seen wages increase, it has pushed some folks to the sideline, especially considering the cost of everything else (gas, groceries) has increased to eat into monthly budgets as well. So while home values climb, buying power has reduced what buyers can qualify for, or what they can comfortably afford.
So what do we do?
Well, it's important to first figure if buyers can qualify AND have a mortgage payment that fits within their budget? If the answer is 'no' to the latter, it may make more sense to wait than to enter a potentially tumultuous financial situation with no true guarantee of future savings (yes, we expect rates to drop when inflation gets reigned in and we enter a recession, but we don't know exactly when or exactly how much). Waiting is, of course, not a good financial move long term, but it may be a necessity for now. In these cases, we wait, we keep in touch, and we offer the best guidance we can.
For those who can qualify , AND, even with higher rates, can obtain a mortgage payment that fits within a budget, we need to educate people on the long term benefits of home ownership, and the fact that it is very likely rates will dip - historically, low inflation and periods of recession see mortgage rates decline, so people that can buy should see both home appreciation and an opportunity to reduce their monthly burden in the semi-near future.
Home ownership is still a key to building wealth for most Americans. Buying is still an immensely better financial move than renting, especially long term but in many cases even short term (for ownership > 24 months). But the current market is seeing costs spike drastically in housing with the rate and home appreciation bumps, so buyers aren't sure what to do. Some can do nothing, and others need proper guidance.
The buyers are still there. There's still not enough inventory to supply them all with homes. But education is needed. Not catchy marketing - real expertise, knowledge of the markets, and insights into the data that shows the true benefits (and potential downsides) of home ownership, so buyers can understand, plan, and execute. They need to understand that their current rate isn't their forever-rate. They need to understand that what they currently qualify for may not be their dream home, but it's a smart financial step toward their dream home.
Many buyers are on the sideline trying to sort this out, or looking to the (always negative) media for guidance. It's up to us to provide the relevant info and show buyers that yes, now is still the time to buy.