If you've been paying any amount of attention to the real estate market, you may have noticed that mortgage rates have been steadily increasing throughout most of 2022. In fact, the average interest rate for a 30-year mortgage is over 5% as of early June.
When the Federal Reserve first lowered national interest rates at the start of the COVID-19 pandemic, buyers essentially flooded the market. Now that interest rates are increasing, some sellers are lowering their asking prices to make sure that buyer interest doesn't begin to wane. If you're searching for your dream home, you may be able to find it at a reasonable price.
Dropping Prices There are several signs indicating that the market is adjusting to current economic conditions. Because of inflation and rising interest rates, many sellers fear their homes will remain on the market longer than intended, which could drive the price down and make the property unappealing to prospective buyers. Even though the buyer's market is still highly competitive, sellers don’t want to risk a slow sale, so some have started lowering their asking prices.
In May 2021, 6.2% of homes reduced their listing prices. During May 2022, this number increased to 10.5% of homes. It may seem like a small adjustment, but it's not the only indicator.
Increased Inventory According to the May 2022 Monthly Housing Trends Report, the inventory of active listings in the U.S. increased by 8% over last year, which indicates that the competition is increasing among sellers. If a seller notices that there are many homes being placed on the market in their area, they may not want to be in a situation where their home is skipped in favor of the others.
The number of newly listed homes has increased by 6% over last year, which is another sign of possible price drops to come. The national median home price is still up compared to 2021 and 2020, but if more and more sellers start to reduce their asking prices, this points towards the real estate market shifting back to buyers. When market conditions are favorable to buyers, the negotiating power doesn't remain solely with the seller. Even if a seller hasn't dropped their asking price, they may be open to doing so during negotiations.
Even though interest rates are increasing, now is a great time to buy if you have good financials and access to enough funds for the down payment. Even a small decrease in asking prices and buyer competition should give you a better opportunity to buy a home at the right price.
Looking To Buy A Home In A Competitive Market? Here’s How To Win
Now that interest rates and home values are increasing at a somewhat steady rate, you might think that market conditions would start favoring the buyer. Despite recent changes, the market remains highly competitive among buyers. When market conditions are favorable for buyers, you likely won't encounter much competition while you search for a new home.
On the other hand, a competitive buyer's market typically leads to the seller receiving multiple bids and having more power during negotiations. Even though buying a home in a competitive market is more challenging, it's certainly not impossible. Here are some tips on how to win when searching for a new home.
Obtain Preapproval The first thing you should do before you begin to search for a new home is to seek preapproval from your lender. The preapproval letter you receive tells you how much you can afford and shows sellers you're serious about buying a new home. Some sellers will only offer tours to potential buyers who are able to produce preapproval letters.
Make a Strong Initial Offer The most important thing to remember when you're searching for a home in a competitive market is to make a strong initial offer. There's a good chance that the seller of the home you're interested in will receive multiple offers because of how competitive the market is. In this situation, you'll likely need to make an offer that's at or above the listing price. A few additional steps you can take to strengthen your offer include:
Waive most contingencies
Look at other offers the seller may have turned down
Add an escalation clause to your offer
The contingencies mentioned above are protections that allow you to back out of the contract you signed without any legal consequences. Because of how important these contingencies can be, this option should only be used as a last resort.
Don't Rush into a Purchase While you should act quickly once you've found your dream home, you shouldn't rush through the initial search. If you find yourself competing with other buyers for a new home, don't push yourself to outbid all other buyers. Even though a strong offer is needed, it shouldn't be more than you can afford.
Buying a home in a competitive market is possible if you pay attention to the tips and guidelines mentioned above. If you receive a preapproval letter from your lender, you should be ready to start your search. Once you've found the home that you'd like to live in, don't hesitate to make a strong offer. With the right approach and the right real estate professional by your side, you can be a new homeowner in no time.