This shifting market has definitely presented challenges for both buyers and sellers.
Within the past 6 months, interest rates have increased from the mid 3’s to mid 6’s. The spike in rates has definitely caused a shock wave through the market, and markets all over the country are feeling it. The increase in rates is in place to curb inflation and it’s unclear when rates will come down again.
That being said, we still have active buyers and sellers in the market. People will always need a place to live, and real estate is a long term investment. In Yuma, AZ, we have two military bases as well as a large population of law enforcement, and snowbirds who relocate in and out Yuma all through out the year. We still have relatively low inventory in most price ranges and if a home is priced right, it will sell in just a few days.
Due to the increase in rates, buyers have had to adjust their criteria and budget accordingly. The increase in interest rates has lessened affordability HOWEVER, buyers now have more negotiating power in most cases.
Let’s run the numbers for Yuma, AZ. If a buyer’s budget is $2,000 a month for a mortgage payment (let’s say they are using a VA loan with 0% down), they can most likely qualify for a loan amount of around $280,000. There are plenty of great homes in that price range that are 3-4 bedrooms and between 1,000-1,900 SQFT. They would be sacrificing the luxury of a pool though, which is what a lot of people in Yuma want because of our hot summers. One year ago, they could have qualified for a loan amount of around $380,000, which definitely opens up more options to include newer homes with a nicely landscaped backyard and pool. As you can see, buyers are now looking in a lower price point but there is always opportunity everywhere.
Most lenders now have a temporary buy-down program that allows buyers to buy down their rate temporarily by 2% which lowers their monthly payment. Sellers are also now willing to contribute thousands of dollars in concessions which allows buyers to buy down their interest rate as well as have their closing costs covered by the seller. If the negotiation is done well, buyers can purchase a property with very minimal out of pocket today vs a year ago when buyers had to pay thousands of dollars in closing costs, home warranties, non-refundable earnest money, waiving inspections, etc.
I have clients who ask me for advice on what they should do, & we weigh the pros and cons of renting vs buying. It really depends on how long they intend to hold on to the property. If it’s less than 2 years, renting may be the better option. However, if you intend to hold on to the property for 3-4+ years, buying is the smarter choice. Home values will continue to appreciate at a much slower pace, and if interest rates drop in the future, they can always refinance and get the lower rate.
Bottom line, the interest rate on rent payment is ALWAYS 100%. Markets always fluctuate, and real estate should always be a long term investment.