The real estate market is very different from this time a year ago. Let's think back to then - properties were going under contract within days, almost every offer was over asking price and everyone considered giving up their firstborn child to become a homeowner. But today, things are different. We've welcomed negotiation space back into our market with open arms, people are having inspections done again and no one is offering to buy the seller pizza for a year.
So you might be asking, "what changed?" - I'll tell you, it's interest rates. By a lot. This was done by design - the housing market (and inflation as a whole) got too hot too fast between 2020 and 2021, the Federal Reserve (aka "the Fed") saw that and had to step in. Raising interest rates is one of the only tools the Fed has to cool off inflation and it had to use anything it could to change course before our economy got any further out of control.
Now, let me back up for a second - yes, the fed raised rates, but the rate that was raised wasn't mortgage rates (they don't have control over that one directly). When the fed raises its rate, it raises the interest rate that it is charging to lend money to larger commercial banks - in turn, this does raise interest rates, but the fed rate is not the average rate for a 30-yr fixed mortgage which is what you're thinking of when we talk rates.
The data from last year to this year shows just how much conditions have changed due to the spike in interest rates. The graphic below shows what's been going on in our market on a year-over-year (left) and month-over-month (right) basis, as well as today's current facts.
Some may have you fearing a market crash, but I'd call this a correction - I went over all the data in my last market update about why seeing this reduction in year over year pricing isn't alarming, so click here to read that when you're done.
Year over year, buyers have much more negotiation space than they did as sellers are accepting offers under the asking price again, and active inventory is up giving buyers more to choose from. But it won't stay this way forever. Things are heating up and will continue to do so as we're heading into spring and summer.
While no one can predict the future, Reno-Sparks is predicted to continue growing. Tesla announced a $3.6B expansion of the Gigafactory, luxury hotels developers are purchasing new lots downtown and we're continuing to see a flow of transplants come in from all over the country - our market has been on a steady growth trajectory for a while, and the issues of infrastructure are only now being addressed. Affordability and availability of housing in our area are seen as one of the top issues with our growth.
Being ahead of the 8-ball in terms of getting into the market now while conditions have eased, can be a saving grace for a lot of us. The negotiating powers and reduction in principal price can outweigh the interest rate hikes.
Here's a perfect, real-life example that I just ran with my lender for one of our buyers earlier today:
- a. offer $15k less than the asking price
- b. request a 2% seller credit for an interest rate buy-down.
- Option a. Saves buyer $85/mo versus Option b. Saves buyer $176/mo
What do you think I advised them to do? I would opt for the route that saves the most per month, and that's what I told them. The additional closing cost which would be the interest rate buy down is being paid by the seller, so therefore not changing their cash out of pocket. This winds up as a win-win situation, the seller gets to get a good deal, while the buyer is getting a payment that is manageable for them and even cheaper than they had expected.
Ultimately, the best things for buyers to keep in mind during this time of a changing market are the following:
- Use this time to your advantage - the market won't be this way forever.
- Don't let the fear of "high rates" deter you from buying. Honestly, rates are right about what they were when I started in the business back in 2017-2018. Talk with a lender before scaring yourself for no reason.
- Knowing how to be creative is where the best savings will come in for buyers right now, so be sure to work with a team of professionals you trust to know their shit and have your back.
Happy house hunting!