By Diann Carlson | [email protected]
Recent changes in the real estate market may be causing alarm for some potential buyers as they enter at this often confusing time.
Their friends, who last year purchased a new home, have benefitted from historically low interest rates. But, as everyone knows, the Federal Reserve has more recently raised interest rates and will likely do so again before the end of 2022. Where are potential buyers in this new reality?
Let’s take a walk back in time to learn from the past. During the 1970s, the average interest rate was 8.75%. In the 1980s, the average was 12.5%. The 1990s brought relief when the average interest rate was only 8.12%. The early 2000s was an even better average at 6.29%. The 2010s average was 4.09% and the average rate in June 2022 came down to 3.25%.
What we are seeing this summer as the rates rise a bit is perhaps a stabilization in rates, and thereby, a balancing of the marketplace. No one anticipates that rates will increase to the levels of the 1980s. Is it possible we could see rates looking like the early 2000s again?
Potential buyers will do well to consider that they may be paying a higher interest rate this summer than they would have last summer, but this year – they are not likely to need to use an Escalation Agreement in their Offer to Purchase and may not have to compete with a bevy of other buyers interested in the same home.
They likely won’t have to pay a substantial amount in an escalation clause, as they would have last year.
They may even be able to secure the seller’s agreement on an inspection contingency or an appraisal and financing contingency within their offer to the seller. Possibly all three.
Lenders this July are encouraging buyers to consider paying “points,” which may be tax deductible as prepaid interest, to obtain a low interest rate. It’s a feasible option to request that the seller pay a point or two as part of the contract negotiation.
The “frenzy” of last year’s housing market has transitioned this year into a more level playing field for buyers, and this can benefit sellers as well.
Sellers may have lost the advantage of a total “seller’s market,” but they still have the opportunity to be successful in 2022.
As always, sellers are wise to seek the counsel of a professional realtor to guide them through the preparation process prior to presenting their property to the market. For sellers, a stable market means that there will be fewer contracts falling out before settlement, as buyers won’t be hastily making offers without being truly pre-approved for their financing.
The government’s goal has been to slow the progress of inflation with the raising of interest rates. The costs of goods and services have risen greatly in nearly every sector during the pandemic.
The prudent seller will be mindful of these conditions and when pricing their property for the market, they will be nimble in taking a realistic view of where the market is today, causing them to have the houses that will sell before their competitors.
It’s all in the balance.
The writer is an associate broker with TTR Sotheby’s International Realty located in Old Town. She provides her buyer and seller clients with personal service and shares her references with potential clients. Call or text her at 703-628-2440 or [email protected]