Real Estate FAQ by Kit Eberhardt
Edited by Mikkel Hyldebrandt
The housing market has been kind of crazy over the past couple of years, and many people made lots of moves, whether buying or selling. The economy looks very different now, but the real estate market is still strong. Or is it? What do you do if you’re looking to sell or buy? Together with real estate agent Kit Eberhardt, we answer some of the most frequently asked questions.
What is the current state of the housing market?
The current housing market is in a state of correction and balancing. The pandemic’s influence over the real estate market was a two-fold scenario leading to extreme appreciation – one, uncharacteristically low-interest rates (some as low as 2.49%!), and two, the need/desire for “more space.” Interest rates were unprecedentedly low due to the federal government purchasing mortgage-backed securities to keep rates artificially low. In Q4 of 2021, they then began to sell these bonds, causing bond prices to plummet and forcing interest rates to rise through 2022. Traditionally, mortgage rates follow mortgage bond prices. Home values and prices appreciated thanks to the average (%) rate, allowing buyers to take advantage. With a stronger incentive to buy and not enough inventory to meet the sudden demand, buyers were faced with the burden of deciding how to make their offer the most attractive and increase their odds of acceptance, i.e., waiving all contingencies, offering over the asking price, and having extra cash to use for earnest money. With dozens of offers over asking for all cash, sellers essentially had their pick of the litter.
Is the housing market going to crash?
No, thankfully, the housing market will not crash, and we are not trending to replicate the 2008 market. What we are currently experiencing is market normalization. To incite a possible bubble or crash, we would need to see mortgage delinquencies on the rise and a mass wave of foreclosures and short sales. Since 2008, strict guidelines have been placed, forcing buyers to fully qualify for financing before closing on their property.
Is the housing market slowing down?
Overall, the market is cooling off compared to 2020-2021. Right now, going into the winter season, this is a natural occurrence; winter months consist of colder weather, political elections, and back-to-back holidays, all activities making consumers want to press the pause button. Fortunately for buyers, this is an opportune time to regain negotiating power; fewer buyers in the market provide leverage. Sellers can also look at this time as an opportunity when they go to purchase, too. What sellers may “lose” or “give up” in selling their property, they can look to regain in purchasing their next property. Fortunately for sellers, home value appreciation will maintain thanks to 2021 comparative values.
Everybody is talking about inflation; what does that mean to me if I want to buy or sell a home?
Inflation will not directly affect buying or selling property unless you purchase new construction. Supplies, labor, materials, etc., will all increase in cost, affecting the overall cost to build or buy new construction versus a resale property.
What about the interest rate; last year, it was low, and now it’s high(er). Does that mean I should not buy or sell right now?
Yes, you are still in an excellent position to buy or sell right now, even with the higher rates. Regarding higher interest rates, it is important to consider your option to refinance within the next 12-24 months.
The “over ask” sales prices and appraisal values from 2020-2021 continue to create opportunities for sellers to list their property for sale. Comparative values are still driving today’s market for a more substantial real estate ROI. During this current season of the year, the colder months provide ample leverage for buyers. Typically, consumers’ desire to purchase a home slows during the winter; yet those who want to make an offer on a home find they have enhanced negotiating power because of the decrease in demand.
Also, an overlooked silver lining: when it comes time to file your taxes, a higher interest rate means a greater tax return from writing off the mortgage interest.
When will the housing market get better?
Realistically, the market ebbs and flows just like anything else. It can be an intense roller coaster but considering the State of Georgia is in a housing deficit, real estate isn’t going anywhere. Looking into the next year, interest rates are expected to come down and average between 5-6% just in time for Spring and Summer to propel the market into a typical seasonal frenzy. Historically, the average interest rate has been at a comfortable 4.25% (pre-pandemic), so we really aren’t far off.
What financial considerations should I make if I want to buy a house?
First, you should seek advice from a trusted lender when you have questions regarding the financial aspect of homebuying. While some agents have enough experience to share information, your loan officer will have the most up-to-date information and knowledge.
That said, if your goal is to purchase a home now, it is best to get full preapproval from a trusted local lender recommended by your agent. You should also have an idea or understanding of what you are comfortable spending on a monthly payment and how well the payment fits into your budget.
In looking at credit, it is typically the goal to meet a score of at least 640. For individuals with a credit score lower than 640, you can work with your lender and learn the best steps to increase the correct way. A loan officer knows and can provide the guidance you might need in credit restoration and improvement.
It is important to understand the difference between prequalification and preapproval. A prequalification is what most online lenders and major banks can provide and is a “best” estimation of how much you could be approved for a mortgage. For the most part, these online applications are only collecting basic information and not requiring you to submit supportive documents to be sent to an underwriter. This can lead to holes in your pre approval because not all information is being reviewed. When you complete an application for pre approval, a licensed lender reviews all the supporting documents to ensure there aren’t any holes.
An underwriter will review your income, debt-to-income ratio, funds required for closing, work history, credit, etc. When choosing between loan options, for a conventional loan, your minimum down payment is 3% for first-time homebuyers and 5% for experienced buyers. In considering FHA, 3.5% is the minimum down payment for first-time homebuyers.