You may have noticed the real estate market tightening and slowing in recent months. Homebuyers are becoming increasingly more cautious due to the feeling that they may be purchasing at the top of the market and will have to obtain a higher market interest rate compared to the past. This also translates to buyers being more difficult to secure in the marketplace for home sellers. This, in addition to an ever-rising interest rate market, is leading to more compression and more competition from lenders. And as the fight for consumers becomes ever more challenging, homebuyers who are in the market become ever more competitive to land for lenders. The fight for purchase business continues.
The Current Market
As many consumers have noticed, the current real estate market remains at a plateau. While we continue to see homes being bought and sold at a standard rate in the conventional markets, the move-up buyer — someone who buys a house that is larger and more expensive than the house they already own — is almost like a ghost.
As interest rates climb and housing prices stay flat, the move-up buyer market will not gain traction. The reason for this is very simple: Most people who currently find themselves in a good equity position in their home and purchased their home between 2012 and 2015 are scratching their heads. Those who do want to potentially move into a home in a better location, or want more square feet or updated finishings, are pondering if it’s really worth the move.
And here’s the conundrum: If they purchased their home in 2011 to 2013, and that home was $500,000 and is now worth $800,000, and their current budget is $1.1 to $1.3 million, they may be asking themselves, “What do I really get?” The answer is not much more. This is because a home bought four or five years ago has seen significant appreciation. Therefore, even with a higher budget today, what they can buy doesn’t yield much more than they already have.
Even though the budget is on the higher end, consumers may find themselves saying, “If this is all I get for this amount of money, I think I’d rather stay in my home.”
More importantly, the current interest rate they are paying may be in the mid- to upper- three percent range, yet current rates are looking closer to five percent. Facing the possibility of getting out of an incredible interest rate to jump up to 100 to 150 mortgage points, thereby increasing their monthly expenses significantly even if their loan amount stays the same, smart consumers are saying, “No. I’ll stay in my home. Maybe we’ll remodel it.” And that’s what I’ve observed across the board. —Jason Mitchell