With mortgage rates on the rise, inflation lingering, and the majority of our financial and business leaders gearing up for a long recession, cash home buyers will soon have the opportunity to buy the home they want for a much better price.
In fact, economic periods like the one we're in now, while disconcerting on the whole, have traditionally been great times to buy homes for those with cash or even low-interest lines of credit.
The headline of a just-published Realtor.com article says it all:
Many experts, analysts, and pundits as well as major players such as Zillow are even predicting plunges in home prices up to 20% in some areas.
So, what's happening in Massachussets?
Similar to the Realtor.com headline, another one published this week in the Boston Herald brings it all into focus on a state-level:
As the article points out, the national and global forces at work on our economy are putting pressure on prices and freeing up availability for wealthier buyers and those using cash or non-traditional financing:
- Inflation has stayed high despite attempts to tame it
- Mortgage companies and banks see risk to future earnings so they're pushing rates upward
- Mortgage applications from traditional buyers have plummeted creating more home inventory
While we're just at the beginning of the downward turn in home prices, now may be the time to start actively honing in on the best homes to buy as prices drop over the next year to fully leverage market conditions to your advantage.
How to use this market to get the best deal on a home
Again, the news sounds bad on first glance, but the current situation has many silver linings.
With the pool of typical buyers dropping dramatically due to mortgage rates, inventories rise as sales slow and homes sit on the market longer. This gives the right buyer more opportunity and more leverage:
- There's more choice in the market and less pressure to buy
- You can take your time and find the home what you want
- Prices drop, so your investment means more equity in the future
- As sellers get desperate, buyers can negotiate additional price reductions
- As owners strive to beat other sellers, you have more flexibility with inspections, warranties, and repairs
As a cash buyer (or "near" cash buyer using lines of credit), you have the chance to follow the age old adage "buy low, sell high" in this rapidly declining home market.
How to pay for your reduced-price home
It's almost always best to use someone else's money to buy a home (i.e., a mortgage). But, with mortgage rates high and more rate rises likely to come, it doesn't make great financial sense to borrow right now.
That means the buyers best able to take advantage of falling prices fall into the following categories:
- Cash buyers who can buy now then take out a mortgage when rates fall in the future to "repay" themselves
- Those with flexible lines of credit locked in at lower, pre-existing interest rates
- Those who can get "private" or "portfolio" loans where collateral or assets are used to secure funds for a home purchase
- Those well-off enough that high rates now are not a big worry
Believe it or not, and despite all the negative aspects of the economy, most Americans are actually doing pretty well financially even after the pandemic. As reported recently in the Wall Street Journal, consumer spending and confidence are very high - and continue to be so despite inflation.
If you fall into this category of home buyer, get in touch with Doran-Hall Real Estate today and we'll help you find your best deal amidst the price drops. It will only be a matter of time before mortgage rates fall again and inventory, price rises return.