It’s no secret that the housing market has been exciting over the past few years. During the pandemic in 2020 and 2021, we saw home values soar as mortgage rates fell to historic lows. Demand for housing far outweighed the supply, making bidding wars and offers well over the asking price commonplace. Altogether, a perfect storm of factors made for a spectacularly hot seller’s market.
Now in 2022, we’re seeing the pendulum swing back the other way. Mortgage rates are climbing again—last year, the average interest rate on the most popular mortgage loan product, the 30-year fixed-rate, was trending under 3 percent. Today it's at nearly 7 percent.
What does this mean for home buyers? Increasing mortgage rates affect affordability, as buyers must factor increased interest costs into their monthly payments and overall budget. Today's buyers may be looking at homes in a lower pricing bracket than they might have a year ago.
Some Good News
But there is still good news or anyone looking to buy in the Valley. Sellers’ concessions—or closing costs that the seller agrees to pay—have increased to around 42 percent as of last month, up from the more typical rate of 35-40 percent. In certain counties, including Maricopa, Tolleson, and Buckeye, we are seeing concession rates as high as 80 percent!
These concessions are often applied towards a mortgage financing technique called a 3-2-1 buydown. In a buydown loan, the new homeowner can take advantage of a lower interest rate for the first few years of the mortgage in exchange for a higher up-front payment. In a 3-2-1, the homeowner’s interest rate would be reduced by 3 percent for the first year, 2 percent for the second, and 1 percent for the third. The lender will then charge the full interest rate in the fourth year of the mortgage and onward. In a concession situation, the seller may cover that higher initial payment.
The 3-2-1 is a great way to keep homes affordable, and this could be the perfect time for lenders to come up with creative new lending strategies—personally, I would love to see a 40-year mortgage to help make homeownership attainable for more people!
As we move into 2023, interest rates are expected to continue to rise, and eventually, that can impact housing prices. Experts do not anticipate a fall anywhere near as dramatic as the one we saw in 2008, but we have seen a pricing adjustment of about 2 percent per month since May.
While this may not sound ideal for anyone looking to sell, do take heart that year-over-year value is still trending up—meaning that homes are appreciating at a rate of about 7 percent on average. It is important to remember that real estate is a long-term gain; eventually, the market will bounce back!
Whether you’re buying or selling, working with a trusted Realtor can help you confidently navigate these market changes and make the best decision for you and your family. Whatever your real estate goals may be, I’d love to connect and find out how we can best serve you.