This has been a very strange year for real estate as we’ve seen the pendulum swing from a super strong sellers market in January 2023, back to a more balanced real estate market in the Fall. Interest rates for home mortgages were at 6.50% at the beginning of the year, but we continued to see multiple offers on most homes, driving the sellers asking prices even higher. Buyers were willing to wave home inspections, or at least accept the home “as is” with no request for repairs. Many new homebuyers were also willing to guarantee they would pay the contract price, even if the appraised value came in lower. That’s what it took to ensure getting the right home in a multiple offer situation.
Today, in November 2023, the current average interest rate for a 30-year fixed mortgage is 7.83% but now we’re seeing a few homes that are sitting on the market a little longer and not selling in the first 48 hours. Most homes are still selling within a few weeks, but gone are the days of multiple offers and waiving home inspections. Some sellers are even showing their willingness to negotiate on their asking price.
In recent months, we’ve seen a growing number of potential homebuyers sitting on the fence, patiently waiting for interest rates to drop. I understand why buyers are concerned over interest rates, but I think they’re focused on the wrong thing.
Interest Rates Are Not The Problem
While buyers await lower interest rates, property prices continue to appreciate in many areas of Kansas City. To be clear, we still have a shortage of available homes on the market today, but home buyers are getting picky. The longer they wait, the more challenging it can become to find affordable homes, particularly in desirable neighborhoods. Many homes in Kansas City are rising by as much as $1,000 per month. This creates a dilemma as buyers must weigh the potential interest rate savings against rising property prices.
Inevitably, there will come a time when interest rates drop, potentially reverting to the 30-year historical average of 6%. When this occurs, we can expect an influx of new homebuyers surging into the market, reminiscent of the super competitive conditions observed over the past three years. This surge will intensify competition for prime properties, prompting buyers to forgo inspections and offer bids ranging from $10,000 to $40,000 above the seller’s asking price.
In the present real estate environment, prospective buyers have the opportunity to thoroughly sort through available listings and make informed choices. They can submit a reasonable offer while maintaining certain contingencies. If necessary, they can request that the seller address specific repairs. In certain instances, they may even be able to negotiate the purchase price without the concern of entering a heated bidding war. Yes, they’ll be paying a higher interest rate today, but when rates drop in the near future, they will also have the option to refinance at a lower interest rate.
Selling Your Current Home And Finding The New One
Let’s also talk about people who want to sell their current home and buy a new one. Over the last few years, many homeowners seeking to make the transition to a new property found themselves in a difficult position, as they had to structure their offers contingent on the sale of their existing home. This contingency posed a huge hurdle, particularly in a market inundated with numerous eager buyers. Sellers would rarely consider any contingent offers due to the abundance of interested parties willing to proceed without such conditions.
In the present real estate landscape, many sellers are now open to considering contingent offers. This shift in seller sentiment significantly streamlines the process of selling your current home and realizing your dream of finding a new one. It enables you to synchronize the timing of both sales, reducing the need for a double move. When interest rates decrease, the flexibility of considering contingent offers may become one of the first concessions to be discarded.
As always, I’d love the opportunity to discuss this subject with you in person or on the phone. For most people, the more balanced market we are in today makes more sense, even if you have to pay a little higher interest rate for the short term.