Could higher mortgage rates have a silver lining for buyers?

white and brown concrete house

When rates go up, so does inventory

Weary homebuyers in competitive markets may be getting some relief. 

While the average 30-year fixed rate decreased from 5.10% to 5.09% for the seven days ending June 2, mortgage rates are still higher now than they have been since 2019.

Source: Freddie Mac

The federal reserve increased mortgage rates in the spring of 2022 and is expected to do so again before the year is over in an attempt to curb inflation. These rate hikes are causing potential homebuyers to weigh their real estate options.

But there is a silver lining for some homebuyers.

Since the mortgage rate hikes are discouraging new buyers from entering the market, buyers who stick it out may have a better chance at winning their home offers in a less competitive atmosphere. 

We asked our real estate experts at Flyhomes to weigh in with tips on navigating this changing housing market landscape. 

Talk to a Flyhomes agent today to get expert homebuying help, even in uncertain markets. 

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Homebuyers are declining and paving the way for other buyers to make offers

“Up until late March, every home had a ton of activity and many buyers,” says Andy Randles, Brokerage Sales Manager at Flyhomes. “But the amount of buyers in the market is declining quickly.” 

That’s likely due to the increase in mortgage rates the federal reserve announced in the spring of 2022. 

It’s the first time since 2019 that a 30-year fixed-rate mortgage reached 5% interest

But when mortgage rates rise, it spooks some buyers out of the market, paving the way for other buyers to make offers. 

The housing market inventory is rising 

“This time last year, even earlier this year, buyers were looking at one or two listings every week and getting slaughtered on all those offers,” Randles says. “Now they have fifteen homes to look at, and there’s more that actually have what they’re actually looking for.” 

The National Association of Realtors found that nationwide housing inventory was down 12% in April compared to the same month last year. 

Even though inventory was down month-over-month, it was a less steep drop-off than in March, when inventory dropped by as much as 18%, according to the NAR study. 

Randles continues, “I remember looking at homes for sale in Sammamish, Washington, at the beginning of the year, and it had 16 total listings, including condo listings and single-family listings. Now, Sammamish has 86 total listings, and 27 of those are past eight days on the market.” 

Home prices are falling, depending on the area

Randles is careful to add, “Home prices are as high as before the rate hike.”

High-earning buyers in expensive zip codes are less put off by higher mortgage rates, so competition in those areas remains fierce.” 

Markets, where home prices are closer to the national median are subject to the effect of the mortgage rate hikes more than in outlier markets like the Bay Area and Seattle

For example, the average time it took a home to sell in Stockton, California, east of the Bay Area, jumped from eight days to 11 from March to April. 

Across the country, in Boston, the average number of days on the market jumped four days from 15 to 19.  

The amount of time it took for a home to sell increased by a day from 8 to 9 days. 

The average house received one fewer offers, down to 6 from 7. 

These may seem like minor changes, but at the height of competition, homes in some cities sold in under a week and received more than 20 offers before the recent rate hikes

The truth is you’re better off not waiting until tomorrow to buy your home

But Kevin Mau, Mortgage Sales Manager for Flyhomes, says many buyers have trouble seeing the silver lining in the rate hikes. 

“We have seen clients hesitant to lock a rate because they’re hoping that the rate will be lower tomorrow,” Mau says. “We tell our clients that even if the rate goes down a point tomorrow, the next day it’ll increase two points, so you’re not better off waiting longer.”

Mau says, “As of now, homes are still relatively affordable.” 

“We’re pretty much around the same interest rate compared to mid-2019, so we’re still at a pretty low rate,” he says. 

The most immediate effect a mortgage rate has on a buyer’s bottom line is their monthly payments. 

“But, even if rates seem high right now,” Mau says, “buyers still have options.” 

“It might make more sense to choose an Adjustable Rate Mortgage product that fits your needs, especially if you’re early in your career and expect to be promoted.”

Otherwise, he says, “It’s fine to stay out of the market and focus on what you can do to keep your rates as low as possible, like closing the gap between your debt and income and raising your credit score.” 

But experts warn buyers to, stay out of the market at your own risk. Buyers are benefitting from a more mellow market, but that silver lining doesn’t extend to all aspects of the homebuying process. 

“Just because interest rates are going up doesn’t mean prices are going down,” Randles warns. 

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