Our HOT Sellers market in the Phoenix Valley has now cooled off like the Fall temperatures. Looking more like a neutral market, leaning slightly towards a Buyers Market. A Buyers market means the supply of homes outweighs the demand to purchase. Buyers can take their time, be picky and negotiate repairs, price, and/or concessions with the Seller. Sounds like a WIN for Buyers, right?? Hold my beer, the Fed is on a mission to squash inflation with such vigor, that they are raising rates faster than I can chug said beer. News not worthy of a cheers. Higher interest rates mean that Buyers can afford less in purchase price.
For example: In Scottsdale, the median sales price for a single family home (in the last 30 days) was: $950,000. With 5% down payment at a 7% interest rate, that is a monthly mortgage estimate of: $7,127/month. When rates were around 3% that same house with 5% down would only have cost $4,928/month. Ouch! Don’t hurt your neck looking back, but let’s not forget the competition to buy a house at that time was incredibly difficult due to the extreme demand. 5% down wouldn’t have been competitive enough, you’d have to offer above list price, waive appraisal, & shorten or waive inspections – you name it & I tried it. So, let’s pour one out for the Buyers. They have been hit and now sucker punched.
So, what does this all mean? Is there any GOOD news for Buyers?
Yes! THIS. IS. TEMPORARY. The interest rates will come back down just as fast as they increased. When is the question that I can’t answer. The Fed wants inflation down to 2%, so once that happens, expect rates to come back down. Disclaimer: it’s highly unlikely they will ever be as low as 2-3%, so optimistically anticipate somewhere around 4.5%-5.5%. Also, this is not our first recession and won’t be our last (*breathe*). People will always need to buy and sell, and that is where opportunity lies. A Seller who needs to sell, will typically negotiate the most aggressively, Advantage: Buyer.
And how about this sweet little nugget of knowledge: You get to write off your mortgage interest payments on your taxes! That higher interest rate, means a higher deductible on your taxable income. Isn’t that a nice little gift? So add up your monthly interest payment, multiply by 12 and you get to subtract that amount from your taxable income. For Example: that $950,000 house with the 7% interest rate, is about $64,000 a year in interest payment tax deduction. Hallelujah! You are officially taking advantage of the system and a key example as to why buying (vs. renting) is always a WIN.
So, how do you WIN as a Buyer in this Real Estate Market?
Seller Concessions: Seller concessions are funds that the Seller contributes towards a Buyers closing costs. A Seller can’t just give a Buyer money, but Seller concessions are the legal work around. Variable to each Buyer, a Seller can typically offer 1-3% (sometimes up to 6%) of the purchase price towards Buyer Closing Costs, Title/Escrow fees, Loan Fees, Prepaids, and/or Mortgage Discount Points (aka buying down the interest rate). Rate buy-downs are a great option for a Buyer to lower their monthly mortgage with a lower interest rate, but it’s costly. If you don’t plan on living in the home longer term (3+ years) it might not be the best use of Seller funds. Depending on the house and Buyer qualifications, it can cost upwards of $15k+ to get 1% lower of an interest rate. If buying down the rate doesn’t make the most sense for you, the next best thing: Negotiations! As your Realtor, I would negotiate those Seller Concessions to be used towards repairs or updates on the home. For Example: I recently represented Buyers where I was able to negotiate 4.5% Seller Concessions. The Buyers closing costs were only going to be around $12,000, leaving about $40,000 in extra funds (YAY!). I was able to negotiate with the Seller, to reallocate those funds at closing, to be paid directly to a contractor to start my Buyers renovations. MAJOR WIN.
Refinance: Not a new idea, as homeowners have been utilizing refinancing for years, but couldn’t be more relevant in todays market. If you purchase a home with today’s interest rates, just know that you can always refinance when the interest rates come back down in the future. Refinancing to a lower interest rate will greatly reduce your monthly mortgage payment = you get to keep more of your hard earned money! But, what does refinancing cost? At the moment, some lenders are offering free refinancing within a certain timeframe, so should be slim to none. Otherwise, refinancing can cost up to 2-6% of your total loan amount, and the fees are added onto your loan, so that it is paid for over the life of the loan resulting in no upfront/out of pocket cost. Ultimately, refinancing will be a great option….but again, not until rates finally come back down..whenever they do..
I hate ending on a disappointing note but it’s Friday – so go get your weekend on! If you have any questions or want to chat, I am just a call away. 507-398-2555 or [email protected] And as always, Just Click Your Heels because there’s no place like HOME❤️.