Interest Rates are Up, It's Time to Buy!

Interest Rates are Up, It's Time to Buy!

This is not conventional wisdom. Many potential homebuyers are waiting in the wings with breathless anticipation of the next housing crash. “I’ll wait to see what happens in the next year,” “I’ll wait until rates come back down,” “It’s too risky right now.” These are common and understandable refrains. Interest rates are more than double what they were a year ago. But perspective is everything. Despite the fact that rates have doubled, they are still below the average rate over the last 30  years. Rates won't come down much, and they likely won't ever reach the record levels of 2020 and 2021. No matter what happens with rates, people who need a home will have to choose between renting and paying someone else's mortgage, or buying - and building wealth through real estate ownership.

(Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, December 15, 2022.)

In November 2021 the real estate market was hurtling along at exit velocity. Comparing the San Antonio Board of Realtor (SABOR) market charts from November 2020 to November 2021 indicates a rapid acceleration of the market, followed by a deceleration when comparing November 2021 to November 2022. The market is still moving, but Imagine stepping off a rocket ship and into a formula one car. The change in speed feels dramatic. 

From November 2020 to November 2021 Average Days on Market went from 49 to 32 and months of Inventory went from 2 Months to 1.6 Months. A neutral market is considered 4-6 Months of inventory.  This low inventory meant there was very high ratio of buyers to homes. Competition was fierce. Evidence of the housing shortfall was all around us. We experienced situations where homes had 20+ offers within a 24 hour period. We routinely saw homes sell for 6-figures over asking price. Waived appraisal results and inspections were commonplace. Many buyers were either settling or giving up. VA buyers were disadvantaged and FHA buyers were completely shut out. The environment was unhealthy and unsustainable.

Rising rates have eliminated many buyers from the market and reduced buying power for many others. But here is the silver lining. In the process these rate increases have created a better environment. Buyers and sellers are on equal footing for the first time in years.

Here are my three quick takeaways from the November 2022 Statistics for the greater San Antonio area:

1. Inventory is growing. Around 1,000 more homes were listed in November than were put under contract in the same month (new listings versus pending sales). There is no longer a race to get under contract. The buying process will be more deliberate, enjoyable and satisfactory for home buyers.

2. The market has normalized. Average DOM is up to 52. Total sales in November are down 25% from last year and Months of Inventory have gone from 1.6 to 3.3. We are approaching a true neutral market. Buyer and seller leverage will be situational and not automatically defaulted to the seller. The quality of the product will be more important than simply whether or not it’s available and meets basic habitability standards.

3. Homes are still appreciating:

Three Year Trend of Prices in the Greater San Antonio Area

Appreciation has slowed from the steep curves in 2021 – 2022. That is a good thing. If you bought a home in 2018 and sold it in late 2021 or early 2022 you may have experienced more than a 50% appreciation. That’s great news - but consider this. What percentage of the population experienced that level of wage growth? The answer is very few, so despite the low interest rates homeownership was rapidly getting out of reach for the average American. Those rapid increases from 2018 have so far held their ground – but as of November 2022 we began seeing a more modest and sustainable appreciation of 4% year on year.

Buyers: You are in a much better place now. The market has normalized. If you can afford the mortgage, 2023 will be a great time to buy a home. A larger portion of your payment will go toward interest than if you had purchased last year – but be clear about this  - if you rent a home 100% of your payment goes to someone else’s mortgage.

Sellers: If you want to sell, you will need experienced, professional advice now more than any time in the last four or five years. If you want to sell in the Spring you should already be preparing your home now. Don’t wait until the last minute to get advice from a full-time, professional real estate agent.

As always, our team of agents is ready to provide you advice. Contact us for a free, no obligation consultation.

(5657 Copper Vista, MLS 1633463)