Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We earn a commission from affiliate partners on many offers, but not all offers on Select are from affiliate partners.
Below, Select details what two things homebuyers need to be monitoring closely, plus what you can do in the meantime to prepare yourself financially for scoring a new home.
However, rising interest rates have not made it easy for homebuyers, as they’ve increased substantially since early 2022. If you’re in the market to buy a home this summer, you may be able to lock in a slightly lower price as well as a lower interest rate by watching two key factors keenly.
After many months of soaring home prices, the real estate market finally seems to be cooling down. According to a recent report by Redfin , about 1 in 5 home sellers in the U.S. lowered their asking prices in May, the highest number to do so since October 2019.
Our best selections in your inbox. Shopping recommendations that help upgrade your life, delivered weekly. Sign-up here .
It seems the days of making dozens of offers on a home may be in the past. As the Federal Reserve has raised interest rates and the cost of buying a home is now 50% more expensive than it was a year ago, homebuyers have reeled back, essentially changing the entire real estate landscape.
If you’re avidly searching for your next home, keep these two factors in mind as you do your best to time your home purchase perfectly.
1. Inventory numbers are on the rise
As mortgage rates have spiked, the consumer-driven frenzy to buy a home has slowed significantly, a trend that is directly reflected in the number of active home listings.
According to a recent report by the Federal Reserve Bank of St. Louis, there were 376,018 homes listed in February 2022. In May 2022, the number jumped to 516,362, showing an increase of 37%. Now, it seems homes are sitting on the market longer and fewer offers are being made on each home.
“Increasing inventory suggests that rising rates and market conditions have begun to soften demand, meaning buyers may have a bit more leverage,” says Robert Heck, VP of mortgage at Morty, an online mortgage marketplace.
Coby Herzog, a real estate agent in San Diego, agrees. “Listing agents are starting to respond and be helpful again now that they aren’t receiving 100+ messages a day,” says Herzog, who is also noticing that offers are more often being recognized and responded to lately, rather than getting rejected.
As you search for a new home within a specific area, keep an eye on the total number of homes that are for sale there — simply use the resources that are available from Realtor.com’s data section by searching for homes based on the area you wish to buy one in.
2. Interest rates tick upward, but will remain volatile
Since the beginning of 2022, interest rates for 30-year mortgages have been on a steep upswing. On Jan. 6, the average interest rate for a 30-year mortgage was 3.22%, while in recent days, rates hit 5.43%. That means, assuming there’s a 20% down payment, a monthly payment for a $350,000 house just went from $1,213 to $1,577 (less taxes and insurance) in the span of approximately 150 days.
The combination of higher rates and record-high home prices has unfortunately eliminated some potential buyers from the market. But for impatient homebuyers worried about further rate hikes, Heck says, “current market indicators are not projecting interest rate levels to send mortgage benchmarks above 7%,” adding that while interest rates are higher than they once were, they are still historically low.
As for what the future holds, the Fed is on a clear path to continue raising interest rates through the rest of the year to help overcome record-high inflation. Heck urges consumers to stay vigilant since it’s equally possible for rates to decrease or increase rapidly based on macro factors and economic data, along with further action by the Fed.
Because of the turbulent factors, Heck says consumers are looking into mortgage products such as to-be-determined (TBD) rate locks and float-down options. According to Heck, this gives homebuyers the ability to “take advantage of lower rates if they lock their mortgage and rates decrease enough prior to their closing.”
Be sure to check current interest rates with any of Select’s top-rated mortgage lenders, which cater to different homebuyer needs. For example, Rocket Mortgage services those with lower credit scores, while Chase Bank offers flexible down payment options and PNC Bank offers flexible loan options.