It’s a precarious time for house hunting. Prices are high and show no signs of lowering, as housing affordability hit a 37-year record low this year. Moreover, mortgage rates continue to soar, climbing to more than 7% – the highest in 10 years.
That said, for some buyers, the market is friendlier than it was months ago. Despite inflation, skyrocketing interest rates, and the threat of an impending recession, some homebuyers could benefit from the current state of the market.
So, what types of buyers could find this market more accessible to purchasing a home?
The Housing Market is Best for Middle-Class Buyers
Having money is the easiest way to buy a home, but the housing market is currently less attractive for high-income buyers. Many people flush with cash are discouraged from shopping for homes due to having their equity tied up in plunging stocks and bonds. Lower-income homebuyers face even steeper challenges, as high prices and increasing interest rates price them out of the market entirely.
If your buyers are either high- or low-income, they might want to wait for a shift in the market before closing a deal.
Those who straddle the fence financially are in the best position to invest in a new home. A middle-class buyer with a moderate income is less likely to have significant cash invested in the stock market. They’re also traditionally more willing to take on higher interest rates, as middle-class buyers have for years taken out adjustable-rate mortgages (ARMs).
Buyers Who Can Offer Cold Hard Cash Are Most Competitive
Most homebuyers have little choice but to take out a loan to purchase a house. However, for those with liquid assets, sellers highly favor cash payments over loans. Currently, about 20% of buyers already pay in full with cash or make a significant cash down payment.
With few exceptions, paying cash will save homebuyers money in the long run. For instance, cash payment eliminates mortgage payments and interest and can reduce closing costs. Buyers also walk away with an extra six figures over time. For example, a $300,000 loan with a 7.25% interest rate would add up to over $400,000 interest paid over the course of a standard 30-year fixed rate.
Additionally, sellers appreciate cash payments and often choose them over other payment types. As a result, some sellers are inclined to slash their asking prices for a cash offer. With bidding wars less common than last year, cash payments are attractive to sellers because they generally result in quicker, smoother transactions that get homes off the market.
Renters May Still Save Long Term if They Become Buyers
Home prices are sky-high, but so is the average monthly cost of renting a house, apartment, or condo. Therefore, some of your current renters and prospective buyers may be willing to stomach higher mortgage rates and pricier homes. Depending on the location, buying a house may be more economical than renting. Buyers who have cash or qualify for a loan could save money over time by trading their lease for a mortgage.
After all, rental costs for single-family homes have reached a national average of $2,495 a month – a 13.4% increase compared to 2021. While there was a decline in average rental prices during the height of the COVID-19 pandemic, rental prices have risen 17.8% over the past year. Additionally, rental prices have rocketed up 25% higher than pre-pandemic levels. Experts predict that rental prices will continue to surge in 2023, further incentivizing homeownership.
Market trends have shown that, for most people, now is a difficult time to buy a house. For some of your buyers, however, this may be the time to enter a cooling housing market and find the right home.