Broker Note: Is Now a Good Time to Buy?

If you have been following the real estate industry at all over the past several months, you’d know that interest rates have been quickly rising since the historic lows of a few years prior. Just this past week they hit a 20 year high. That, paired with typical fall-time market seasonality, has caused the average days on market for active homes to increase as these homes are now taking longer to sell. We’ve also seen trends in price reductions since the comparable closed sales that these homes were priced from reflect a different market than we are in today. As a buyer, this should scream opportunity for you.

Yes, the interest rates have impacted affordability; purchase budgets gradually shrink as interest rates rise, and hopeful purchasers now have a higher monthly payment for the same house as compared to 6 months and 1 year ago. There are fewer buyers in the market for this reason, especially for homes priced on the higher end of the spectrum, and this is causing less competition and more “typical” offers than the days of waving all contingencies and offering 10%+ above asking.

However, for those of us who live in and around Dane County, these economic factors do not touch the severe inventory shortage that we’ve been in for years. An inventory shortage that continues to get worse over time, especially now due to the “lock-in effect” of sellers who want to sell and find a new place but feel stuck due to their current interest rate being far more desirable than what is currently offered. This lock-in effect is adding additional strain to the already historically low inventory levels, so we’re seeing far less inventory being freed up due to buy/sell transactions than we’ve ever seen. Builder starts are also down; builders don’t want to borrow funds to build at the current rates due to holding costs, so the opportunities for move-up buyers are not as prevalent as we need to keep the market moving forward.

When supply is low (it is historically the lowest it has ever been), and demand persists, prices will continue to increase. We have seen demand start to decrease from the past historical highs due to affordability, but certainly not due to a lack of people wanting to move to and settle into the greater Madison area. These leading indicators lead us to believe that prices will continue to rise, though likely not at the exponential rates we’ve seen over the past 5 years. We project that once early 2024 hits, and ideally if interest rates start to trickle down, a rush of new homebuyers and sellers will enter the market. If interest rates significantly drop, we project that the market will surge like it did during COVID lockdown times, with buyers and sellers eager to jump on the new financing options for their next home.

All signs point to the market continuing to appreciate over time. For a purchaser who may be considering buying to sell that property less than a year later, that may be risky since there is so much uncertainty about the interest rates. However, as a longer-term investment, real estate locally will continue to provide returns and stable equity appreciation, making it an opportune time to buy with less competition. 

Posted by Alison Crim on
Email Send a link to post via Email

Leave A Comment

Please note that your email address is kept private upon posting.