The Kentucky Derby is over and the roses have been won — by the biggest longshot since 1913! Now it’s time to get back down to brass tacks: how you can be a winner in this unpredictable (and shifting) real estate market.
If you’ve been keeping an eye on things nationally and in Louisville, you may have noticed a few things: mortgage rates are rising, inventory remains limited, and houses are selling quickly and often for over-asking price. The experts predict that these trends will continue, at least for the near future.
“On a national scale, home prices are accelerating by 15% year-over-year…which indicates that there’s a lot of demand and very few homes,” Jessica Lautz, Vice President of Demographics and Behavioral Insights, National Association of Realtors recently told First Coast News.
However, this trend is not predicted to remain for all of 2022.
“We do expect that the market probably will settle down,” Lautz said. “We’ll probably go to a pre-pandemic pace in the housing market, so more to the regular times. Probably less demand in the market because of the rising mortgage prices we’re seeing today.
Is the glass half full or half empty?
It depends on how you look at things.
Rates are rising. The current rate for a 30-year fixed-rate mortgage is 5.93%, although there has been a slight decline over the last few days.
“Increasing interest rates are necessary to slow down the unsustainable appreciation and demand we have seen these past two years,” said Paul Knopf, Branch Manager, Interlinc Mortgage. “Unlike the bubble and subsequent housing collapse in 2008 that was the result of fictitious buyers who were not properly vetted, this time around we have overly-qualified buyers and a bubble that’s created from limited supply, where bidding wars have driven up prices.”
The Federal Reserve has rapidly increased mortgage rates, along with other actions they have taken to combat inflation. One result of this is a slower housing market.
“The Fed is able to use interest rates to press on the gas or pump the breaks,” Knopf explained. “We are witnessing them pump the brakes on the out-of-control market. As supply catches up with demand in the coming 12-24 months, don’t be surprised to see the Fed lower rates to give us a ‘go’ again.”
The good news is that inventory is slowly rising as well, with new construction on the upswing and existing homes continuing to hit the market. In Louisville, the Multiple Listing Service (MLS) is showing an average of 1100+ homes most weeks for the first time this year. By contrast, towards the end of March, there were typically 1000 or fewer marketed properties. Inventory is improving.
“The takeaway for fatigued buyers…there’s a lot more fish in the sea,” Jeff Tucker, Senior Economist, told Zillow in their latest market report. “If a home this weekend gets bought up, or you get outbid on it, you’re going to see more homes on the market the next weekend.”
Keep an eye on your budget
When mortgage rates increase, the unfortunate reality is that a buyer’s dollar will not stretch as far. A house that may have been at the top of the price range may no longer fit in at all.
“With rates rising, the other takeaway is that $2,000 a month mortgage payment buys you less today than it did in November or December, “Tucker said. “it’s important to be really clear about what exactly (a buyer’s) budget can get them, because it’ll save time that might otherwise be wasted on homes outside their budget.”
Knopf agrees. “It is imperative to circle back to your lender to review current rates and payment estimates, otherwise you risk being sorely disappointed,” he said. “If you were shopping at the top range of your budget when rates were 3.5%-4.5%, you certainly will not qualify for that same price home in a 5.5% interest rate market.”
Should I stay or should I go?
For sellers, the good news is that it remains a Seller’s Market. Home values are still increasing and are predicted to continue to do so through the spring selling season, according to the experts.
“There’s not a lot of strategic reason to hold off from selling,” Tucker said. When we analyze the best time to list from a perspective of home sale-price behavior, late April is best and May is a very close second.”
The Greater Louisville Association of Realtors (GLAR) reported 7068 new listings in 2022, down almost 400 from this time last year, which indicates a strong market continues to exist for sellers.
“Sellers need to recognize that this unique market allows them to dodge things a buyer would typically consider in a normal market,” Knopf said. “For example, significant repair requests or (other) obstacles” are often overlooked so that buyers can make their offer stand out and get accepted.
What about buyers?
Yes, interest rates have gone up, but they are still historically “good” rates.
“Although buyers have a tougher at-bat in the current market, I believe we will start to see this slowly change,” Knopf said. “Rates will likely stick around 5%-6% for the foreseeable future, but at some point, they will decline as supply catches up with demand.”
But don’t wait, if now is the right time for you to move to a home that more closely fits your current lifestyle.
“There will come an opportunity in the future to refinance to lower rates,” Knopf said. “What there will not be is an opportunity to go back in time and recover lost appreciation you could have gained by buying sooner.”
Jump in. The water’s fine.
The takeaway is that if now is the right time for you to buy or sell in Louisville, market conditions are favorable for both buyers and sellers. The inventory of available homes is slowly increasing and mortgage rates, while rising, are still “good.”
“Yes, interest rates have risen, but they are still historically low, Knopf said. “At some point they will come down for you to refinance, so jump in and start getting the benefits of home ownership through tax deductions, equity, and appreciation.”
If you (or someone you know) are ready to get into the real estate market in Louisville, I can help you find the home that’s right for your life today at a price that fits your budget. And if you need a lender, I’m happy to introduce you to Paul Knopf or another local expert.
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