Many homebuyers and sellers have backed off as persistent inflation and mixed economic signals send mortgage rates up. But for people who are moving now, Redfin’s economists provide tips on getting a lower rate and negotiating in a confusing market.
Today’s housing market is confusing. Mortgage rates have gone up and down and back up again. The market has slowed significantly from its pandemic peak but home prices remain stubbornly high despite posting a year-over-year drop for the first time in a decade last month. Nearly every homeowner has a mortgage rate below 6%, discouraging many of them from listing their home for sale.
Redfin economists are here with tips and tricks to help buyers and sellers navigate this topsy-turvy housing landscape.
Tips for homebuyers: Wait if you can afford to wait, and shop around for the best rate if you can’t
Chen Zhao, Redfin Economics Research Team Lead: If you’re moving and taking out a mortgage now, do your research on mortgage options and shop around for the best rate. While the average 30-year mortgage rate today is 6.73%, you may be able to find a better deal by getting a handful of quotes and then asking your preferred lender to price match the best one. Borrowers should also consider 2-1 buydowns or adjustable-rate mortgages to lower mortgage payments. And because rates are bouncing up and down, you may be able to get a lower rate than you were originally quoted when it’s time to lock it in–check with your lender.
One sliver of good news for today’s buyers is that incomes have been growing quickly and many homeowners have built up significant equity during the pandemic that could potentially be used to help pay for a new home—factors that should help offset some of the cost of rising rates.
Daryl Fairweather, Redfin Chief Economist: Mortgage rates are likely to decline over the next year or so, so it may be worth waiting if you’re in no rush to buy and you plan to take out a loan. If you do wait, pay close attention to economic signals. Mortgage rates are rising mainly due to persistent inflation; this week’s inflation report shows that it has cooled only slightly.. A week ago I would have said the Fed is likely to continue hiking interest rates to combat inflation. But the collapse of two midsize banks in recent days, due partly to high interest rates, complicates the picture: It may pull back on rate hikes to secure the banking system. We’ll know more next week when the Fed makes its plans public. If it commits to fighting inflation and raises interest rates significantly, mortgage rates are likely to remain elevated for the time being. If it presses pause on rate hikes or raises them only slightly, mortgage rates are likely to come down, and buyers who are waiting on the sidelines should get serious about their home search and get prequalified for a loan. You want to be fully prepared to make offers in your area when rates meaningfully come down. As soon as everyone catches wind of dropping rates, bidding wars will pick up.
Keep in mind that whatever the Fed does next week, we still don’t know how inflation will look five or six months from now. Even if mortgage rates come down over the next few weeks, they may fluctuate over the next several months as the fight to contain inflation continues.
The good news for homeowners who can wait: they’ve likely locked in a low mortgage rate on their existing home. The good news for renters who can wait: rental price growth has slowed down significantly, so their rental costs are unlikely to increase much, if at all.
Taylor Marr, Redfin Deputy Chief Economist: Negotiate with sellers and ask for concessions. The scales have tipped more in favor of buyers due to waning demand. Consider offering below the asking price; the typical U.S. home is now selling for about 2% under its asking price. Many sellers are offering concessions, like paying for repairs and helping pay for a rate buydown. Consider including contingencies in your offer, including inspection, financing and appraisal. If something comes up during the home inspection, ask the seller to fix the issue or provide money to pay for it.
DF: Consider new construction. About one of every three single-family homes for sale is brand new, and the share is even higher in sprawling southern metro areas like Raleigh and Houston. That’s partly because of a building boom over the last few years and partly because so few existing homeowners are selling. Builders are in a tough position because they have a lot of new homes to sell at a time when few people are buying. As a result, many are willing to negotiate on nearly everything and provide concessions to buyers, such as throwing in freebies like countertop upgrades.
Many homebuyers, especially remote workers, can also save money by relocating; places like Las Vegas and parts of Florida have been attracting a lot of out-of-towners because they’re much more affordable than coastal hubs like Los Angeles and New York.
CZ: If you feel discouraged, there’s a silver lining to the cool market: There’s not much competition. Bidding wars hit their lowest level since the onset of the pandemic in January. That means if you find a dream home in your budget, you have a pretty good chance of getting it.
It’s true that the time of buying a home and reselling it a few years later for six figures more, like some homeowners were able to do during the pandemic, is over. But life rarely lines up like that, and you’re looking for a place to live, not necessarily just an investment. Your monthly payment may be higher than it would have been a year ago, but you have a good chance of getting a lower price, can refinance when rates come down and may build equity in the meantime.
TM: If you can afford to pay in cash, now is actually a pretty good time to buy because elevated mortgage rates won’t eat into your budget. Cash buyers also often have more room to negotiate because most sellers prefer cash over mortgages, as cash signals financial stability and carries less risk of a deal falling through. It’s also a fine time to buy for someone who is downsizing to a much less expensive home. Finally, it’s a perfectly fine time to buy if you plan to stay in your new home for at least five years. Home values may be volatile in the coming months, but they tend to go up over time.
DF: Make sure you’re working with an experienced local real estate agent. Because so few people are listing their homes, you want to be one of the first to know about everything that hits the market in your desired neighborhood.
Tips for home sellers: Get creative to meet buyers’ budgets; make repairs before listing
TM: Price your home competitively from the beginning to attract buyers. Accept that the market is slow and you’re not going to sell for thousands of dollars over the asking price like your neighbor did eight months ago. It’s better to price correctly than to drop your price later; the latter signals to buyers that there may be something wrong with the home. Sellers should price a little lower than comparable homes in the neighborhood to stand out, especially if speed is a priority. If getting top dollar is more of a priority than speed, understand your home may stay on the market for several months before it sells.
DF: To attract offers in a soft market, get creative to help buyers stay within their budget. That may mean negotiating on price, covering the cost of a mortgage-rate buydown and/or providing some perks. Think about things that would be easy for you to provide the buyer–even if they’re not financial. If your moving date is flexible, let them choose when the deal closes. If you’re downsizing and planning to donate some furniture, include it in the sale. And make sure your home is attractive to buyers. That means staging, cleaning, and holding open houses.
TM: We’re hearing from Redfin agents that move-in ready homes in desirable neighborhoods are still attracting buyers. Consult with your local agent, and if they say your home is the type getting a lot of attention in your area, don’t be too quick to lower your price or agree to concessions.
If your home isn’t move-in ready, consider making it as close to move-in ready as possible before listing. Get a pre-inspection of your home and make the necessary repairs. In a soft market, making sure your home is in prime condition could be what closes the deal. Even small cosmetic improvements–painting, landscaping, replacing dated fixtures–can help lure more buyers. But toe the line between making repairs and investing too much in big-ticket items. Consult with your real estate agent before making big-ticket fixes like a roof replacement, as it may be harder to recoup the cost in today’s market.
CZ: There are a lot of alarmist headlines about the housing market right now, but remember that home values aren’t likely to crash. Values have come down from their springtime peak, but they’re still higher than a year ago and significantly higher than before the pandemic. If you’ve owned your home for longer than a few years, you’ll likely still earn money. That’s partly because there aren’t many people listing their homes, so yours will be one of the few options for buyers in the market.