$3,000/month will now get you $453,000 in purchasing power, up from $416,000 in Q4 2023.
With rates recently falling to ~6.7%, buyers have gained a significant advantage over just a few months ago.
With the recent drop in rates, everything is heating up. As I've been shouting from the rooftops for all of 2023- the minute these rates go back to 6% it will pick up again drastically. Sure enough- in the beginning of this year they went back into the 6's...and it's picked up drastically!! Read on to see some pros, cons and everything in between regarding this new wave of craziness in the ever-changing Real Estate market.
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Quick Recap
#1: The Problem
COMPETITION. Competition is the new problem. Rates brought the market to a near dead-stop in many markets for all of 2023. That's changing.
This is potentially great news for buyers in one regard...but not so much in some others. So- rates are back in the 6's. Your purchasing power went up- or, your monthly payment just became lower.
For instance, now that you can essentially afford $40,000 more house...maybe you stick to the lower price range regardless and just enjoy that lower payment. Either way, your options are broadening again.
Problem? Everyone's options are broadening. And they're out there making offers as well. So now that your purchasing power went up/monthly payments went down...the competition is up. Where in 2023 you could've had the pick of the litter (in some cases) because, overall, no one was transacting and houses were sitting on the market going stale...now buyers are out making offers.
I picked up 8 buyers in January. I'm actively showing them properties and making offers...and we're losing out. They're going at or above ask and getting really competitive with the other terms (like accepting a cash deal at asking price over my buyers 20% down at asking price offer).
The point is that 6% is reasonable. Rates were 4-6% on average over the few years prior to COVID. 2-3% was a golden age that people enjoyed for 2 years, but that window has since closed. 7-8%, though, was too much. That had people sitting out for over a year, waiting for things to change. And they have. And now they're back in.
#2: The Solution
The solution is simple, but admittedly easier said than done. You have to let go of a 2 or 3% rate expectation. 6% is reasonable, and likely here to stay. Will they bounce around for a little bit and maybe go up over 7% temporarily? I believe so. They also might temporarily fall to low 6's. But a drastic cut (think 5%, let alone 4%) isn't likely. People are realizing this, and they're jumping in ready to go after sitting on the sidelines for 12-18 months.
So what does this mean? This very well may the bottom when it comes to your monthly payments for quite some time! A lower rate plus a not-yet-fully-fired-up market may lead to some of the best overall mortgage payments you'll see for now. Because the second the market is firing on all cylinders? You're paying $50,000 over ask again, and your 1% lower rate is cancelled out.
Take this piece of advice from Redfin Chief Economist Daryl Fairweather:
My advice to serious house hunters: Trying to time the market around mortgage rates is probably a waste of energy, as affordability is unlikely to change meaningfully in the next several months. Instead, buyers should consider their own personal and financial circumstances: What matters most is whether the home meets your needs long term and whether you can afford it. Timing the market mattered in 2021, when we were in a golden window of record-low rates–but that window is closed.
#3: Now What?
Go with your gut. Don't overextend (ever), but if a house could work for you and the monthly payment does too- submit an offer. By the time rates go through their next cycle and end up back in the 4's or lower, you may have missed out on 10 years of building equity/appreciation and just throwing it away on rent.
The FED meeting 2 weeks ago disappointed many when they said they do not expect a rate cut this March...but they did say that they're not looking to raise rates and that they're on pause. If they're not raising, then they're lowering them. Eventually. Many experts believe the rate cuts will come later in the year...and I think it will be bedlam when it happens.
If you're on the fence with something that could work- jump in, the water's fine!
I, Joseph Ranola, am an Associate Broker at Matias Real Estate, located at 418 Port Richmond Avenue.
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