Could 7% Mortgage Rates Actually Help Some Twin Cities Homebuyers?
When mortgage rates move to around 7%, it's easy to focus entirely on the downside. Higher interest rates increase the monthly payment on a home, and affordability is a very real concern for today's buyers.
But there is another side to the story.
For buyers who are comfortable with today's mortgage payment and still want or need to purchase a home, higher rates may reduce some of the competition they face—and that can create opportunities that weren't available when more buyers were actively competing for the same homes.
What a Difference a Few Months Can Make
Just this summer, I was working with Twin Cities buyers in several different price ranges, and we were still encountering multiple-offer situations on attractive homes.
In one price range, I saw buyers needing to consider offers $10,000–$15,000 over the asking price, appraisal-gap coverage and other competitive terms—and even then, their bid against others wasn't the winning bid and they didn't get the house.
That's an important point because those experiences weren't from several years ago. They happened this summer.
Now the environment is beginning to look different.
According to Minnesota Realtors, Twin Cities inventory increased in August while homes took an average of 45 days to sell. Metro sellers received an average of 98.2% of their original list price, compared with 98.8% a year earlier. The organization notes that more inventory is giving buyers more time and room to negotiate, although conditions can vary significantly depending on location, property type and price range.
How Higher Mortgage Rates Can Reduce Competition
Mortgage rates around 7% make monthly payments more expensive, and that can cause some prospective buyers to postpone their home search. The average 30-year fixed mortgage recently moved above 7%, putting additional pressure on affordability.
That's certainly not good news for affordability.
But when many buyers leave the market, the buyers who remain may find themselves competing against fewer people, or better yet, being the only offer!
Instead of finding four or five buyers interested in the same property, you may encounter a home with only one or two offers—or, on some properties, you may be the only buyer making an offer.
That can change the entire negotiating dynamic.
Less Competition Can Mean More Room to Negotiate
When a seller receives several offers immediately, a buyer may have next to no negotiating power. The seller can often choose among multiple buyers based not only on price but also on inspection terms, financing, closing date and other conditions.
When a home has been on the market longer without multiple offers, the conversation can be different.
Depending on the property and the seller's circumstances, there may be opportunities to negotiate things such as:
Purchase price
Seller-paid closing costs
Inspection repairs
Closing date
Other terms of the purchase agreement
That doesn't mean every seller will negotiate, nor does it mean bidding wars have completely disappeared. A desirable, appropriately priced, move-in-ready home can still attract several interested buyers.
Real estate is local—and sometimes it's local right down to the individual home.
Watch The Video: Could 7% Rates Actually Help You Buy?
In this short video, I explain what I was seeing with Twin Cities buyers this summer and why today's higher-rate environment may have an unexpected upside for some buyers.
Watch my video: 7% Mortgage Rates?! Could This Actually Help You Buy?
Should You Wait for Mortgage Rates to Come Down?
There's no single answer that's right for every buyer.
A lower interest rate can certainly make a home more affordable. But waiting for lower rates can also mean entering the market at a time when more buyers decide to start shopping again, which mean bidding wars all over again.
That's why I think it's useful to look beyond the interest-rate number itself.
What can you comfortably afford? What homes are available in your price range? How much competition are those particular homes receiving? And how much negotiating room exists in the communities you're considering?
Those questions can tell you much more about your actual buying opportunity than a mortgage-rate headline alone. If you buy a home now, you can refinance your loan later when the mortgage interest rates do come down.
Thinking About Buying in the Twin Cities?
If you're considering buying a home in the Twin Cities, I'd be happy to help you look at what's happening in your price range and in the specific communities you're considering.
We can look at available homes, recent sales, days on market and the level of competition buyers are actually encountering so you can make an informed decision about whether now makes sense for you. Give me a call!
Lisa Rieken
REALTOR® | Keller Williams Preferred Realty | 952-334-6555 | Lisarieken@kw.com