Home prices are falling across the U.S. Does that spell opportunity for buyers?
There’s some mystery over the U.S. being in a recession right now, as economists can’t seem to reach a solid consensus on the topic.
The U.S residential real estate market, however, is another story.
Right now, U.S. housing is in a recession, said Pantheon Macroeconomics chief economist, Ian Shepherdson.
“The plunging trend in sales has further to go, and prices are falling,” Shepherdson said in a recent research note. Noting that U.S. home prices have fallen by 5% since May, Shepherdson sees no near-term relief in sight for the housing market.
“The very low level of inventory means that a headlong collapse in prices is unlikely, but we still expect a total decline of up to 20% by the middle of next year,” he noted.
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Big Rise in Store for Fall Sales
As the old saying goes, where there’s a crisis, there’s opportunity.
“Home prices have dropped roughly 15% from the January 2022 highs in certain parts of the country,” Pacwest Funding chief executive officer Joshua Massieh. “In some areas, we have already seen a 20% correction since January.”
Given those figures, U.S. home prices should continue to trend lower as interest rates continue to rise.
“Sellers still have the leverage as inventory levels are still historically low, but that leverage is slowly slipping away as more homes pop up on the market while more homes sit on the market longer to sell,” Massieh noted.
Another big issue is new home construction developments are slow to deliver due to supply chain issues.
“This is throwing a flood of homes into the market. Home prices have already adjusted to the new level of cost of borrowing, other real estate experts said,” Massieh added.
Those downbeat assessments mean buyers are turning the table and hold more leverage over home sellers.
Take Seattle, Wash., where the residential real estate market has adjusted downward by approximately 20%, since April 2022.
“We may see an additional 3-5% decrease in the fourth quarter of 2022,” said Gordy Marks real estate team director of operations, Jesse Sheldon. “Then I expect the market to rebound in 2023 by approximately 6%. Currently, the market has fully shifted to favor buyers in our market.”
Like many real estate professionals, Sheldon sees a boost in activity this autumn, as home prices plummet – with one big hitch.
“The next two-to-three months is a great opportunity to take advantage of the market if you’re a buyer,” he said. “While interest rates are higher than previously offered, price and terms have not been this favorable in quite some time. Interest rates will ease as inflation gets under control. As rates drop, there will be opportunities to refinance and adjust the cost of monthly outflow.”
While home prices are coming down, rates are rising, so any savings buyers believe they’re getting have evaporated with every slight rate increase.
“For example, last year, if you purchased a home at $280,000 your rate would have been 3.5% and your payment would be $1,006 (P&I) on a 30-year fixed mortgage,” Massieh said. “Fast forward to today, if you purchased that same home, it would be listed at $300,000, and your payment would be $1,478 (P&I) with a 6.25% rate on a 30-year fixed mortgage. That’s an increase of 47%”
Getting a Good Deal
Buyers who want to get off the fence and into the market should do their homework and ask the right questions.
“Concentrate your home search in one or two locations and review prices for houses sold in recent months,” said Lexerd Capital Management CEO Albert Lord. “If you observe declines in home-price growth this will be an indication of softening market conditions and thus a good time to purchase a property.”
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It’s also a good idea to work with your realtor and mortgage lender and come up with a plan.
“The actual home purchase price doesn’t really have a huge effect on your payments compared to the interest rate so have your realtor structure the offer with a large seller credit,” Massieh said. “That seller credit will then be used to buy down your interest rate.”
Your lender will give you several buy-down options, and you can decide the best rate.
“Have the lender show you where the breakeven point is for each buy-down option and then assess your goals and see how long you plan on staying in the home,” Massieh added.
