Shiller price index

Help your customers navigate higher priced environments

What’s happening in the market?

Three main factors are affecting the current market: higher mortgage rates, low inventory and higher prices. Let’s explore these challenges.

Higher mortgage rates

According Freddie Mac, the average 30-year fixed mortgage rate has risen more than 2% since the start of the year. This rise is expected to continue as the Federal Reserve pushed the federal funds rate up by 0.75% since March and began selling its portfolio of mortgage-backed securities.

As the Fed pulls out of the market and investors may begin to demand higher yields to buy mortgage bonds, buyers must adjust to a high-rate world after the Fed’s intervention.

Low inventory level

Vendors are holding the cards right now. Since April 2022, existing home inventory fell 10.4% from last year. At the current rate of sales, all existing homes on the market are expected to sell within 2.3 months, much faster than the typical 6 months of a balanced market.

Price up

Rising rates are usually followed by falling prices or at least stabilization. But with such an imbalance of supply and demand, prices continue to rise. The median price of an existing home is up 14.8% since last April, while the median price of a new home is up 21.4% since last March.

This is also reflected in the S&P Case-Shiller Index, which looks at home prices in 20 cities on a 3-month moving average. Pre-season adjustment, prices increased by 20.2% since last April.

What should you tell buyers?

There are five key themes you can discuss with clients to help them understand that with proper planning, today’s market challenges are not insurmountable.

1. Get pre-approved

Getting pre-approved is in your interest and that of your buyer. This helps customers know how much they can afford and reduces the risk of a deal dropping.

2. Lock in their rate

With rates rising, encourage your customers to lock in their rate as soon as possible to avoid paying more.

3. Consider an MRA

Adjustable Rate Mortgages (ARMs) offer lower initial rates over their fixed term than many other loan options and may even be able to increase your client’s pre-approval amount.

To mitigate the risk of rising rates, ask your client to budget well and advise them to invest more in their mortgage balance. This means lower payments when rates adjust.

4. Conscious budgeting

Remind customers of the difference between what they can afford and what they can comfortably afford. Ask your client to think about their lifestyle and future goals to avoid sacrificing retirement funds or emergency savings.

5. Preach patience

What goes up must go down, so if your client is struggling to find the right home at the right price for them, there’s no shame in waiting until there’s more inventory or more clarity on how whose prices are impacted by higher rates.

And the sellers?

Selling may be easier than buying right now, but there are still things sellers need to consider.

1. Is it a good time to sell?

Your clients may never get more ROI for their home than right now. Just be sure to warn customers who need to find a new home that the home buying process is a tough market right now.

2. Competitive Market Analysis

A Competitive Market Analysis (CMA) can be imperative to staying on top of the market and better advising clients in a rapidly changing environment.

3. Pay attention to the time in the market

Know how long your ads have been on the market and feel free to adjust your pricing strategy appropriately.

The bottom line

Your attorney can be an incredible asset in these uncertain times. Now that you have a game plan, go help some customers!

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