Mortgage rates rose to over 6% last week, according to Bankrate data, with some pros saying they could get higher. (Here are the lowest mortgage rates you might qualify for.) Additionally, home prices are up more than 20% year over year, posing affordability concerns for many aspiring homebuyers. And you are probably asking yourself: What do I need to know if I want to buy a house now? Well, as part of our series in which we ask prominent real estate experts what they think about the housing market, we caught up with Steve Reich. He is COO of Finance of America Mortgage — a home finance company that says it has financed more than $105 billion in consumer loans since 2015 — and has two decades of experience in mortgage processing, underwriting and more. Here are his thoughts on the housing market now.
The affordability challenges are very real right now
“We’ve seen home price growth moderate somewhat late last year, but we’ve seen another reacceleration in the first half of 2022, with home prices up almost 20% year-on-year from February,” Reich says . Experts (like Daryl Fairweather, Redfin’s chief economist, who we also interviewed for this series) have noted that we’re probably reaching a point where that kind of growth can no longer be sustained, and when that’s the case, we can Home price increases are expected to slow later this year. “Regardless, higher home price increases will have a significant short-term impact on how many families can afford to buy a home or be locked out of the market,” Reich says.
Another thing to note is that rising interest rates can further complicate the affordability issue. “On the one hand, I think fear of missing out on low interest rates has contributed to some of the price increases that we see as potential buyers rush to get hold of a home and enter bidding wars. In the long term, however, higher rates will deter some buyers and ultimately dampen demand,” says Reich. (You can see the lowest mortgage rates you can qualify for here.)
Homeowners may be reluctant to sell their homes – which can add to an already tight housing stock
The housing stock is still at a record low. We’re in “prime housing season, when more families tend to put their homes on the market and prepare to move in the summer after the school year,” notes Reich. However, he adds: “There is uncertainty as to how much stock will be available. In fact, “some homeowners who have set interest rates in the low 2% or 3% range are reluctant to sell their home and buy a new home because they know they will be paying more interest now,” says Reich.
On the new home construction side, while it is unclear how full scale continued inflation will affect the availability of new units, the remaining impact of supply chain issues, labor shortages and fuel price increases will likely continue to impact new-home construction costs, labor costs and more areas of the Housing and real estate landscape, according to Reich.
To compete in this tough market, you may need a competitive offering
Given these factors, buyers should be aware that in order to compete in the current market environment and get your offer accepted, they may need a strong offer. “You may need to get creative: consider limiting the contingencies in your offer if possible, and don’t charge too many credits. Show sellers that you can be more flexible in terms of time, for example offer to close faster or even let the seller sign a leaseback if they need more time to move out or look for another home,” says Reich. A pre-approval letter, higher deposit, and upfront insurance can financially strengthen your offer and make you a more convincing buyer.
However, how competitive an offer needs to be varies from market to market (and of course door to door) – with some markets being far more or less competitive than others. In fact, Redfin’s Fairweather recently told MarketWatch Picks that we are seeing early signs that the housing market is starting to cool, at least in expensive coastal cities. “Buyers in markets like Los Angeles, San Francisco, Boston and Seattle, who are losing out in multiple bidding wars, may find that they have less competition from other buyers than they did a month or two ago,” says Fairweather.