Is now a good time to buy a home?
Falling home prices, soaring mortgage interest rates and a shaky economy all point to a firm no. While sellers are still catching on to this reality, homebuyers are already well aware — and are acting accordingly.
Homebuyer demand, as measured by the number of homebuyers actively searching for a home, has declined 32% across the U.S., according to Zillow.
Here in California, compared to a year earlier, homebuyer demand has plummeted:
- 31% in Sacramento;
- 38% in San Francisco;
- 44% in Los Angeles;
- 45% in San Jose;
- 45% in San Diego; and
- 48% in Riverside.
In California and elsewhere, a trend is emerging which sees the markets with the highest home price increases during 2020-2021 now experiencing the quickest about-face in demand.
When the pace of homebuyer demand slips below the number of homes arriving on the market, inventory rises. This tumultuous turnaround has caused a bump in the multiple listing service (MLS) inventory, which now averages 14% above a year earlier, as of November 2022.
Thus, as Riverside has seen the steepest drop in demand, it has also seen the steepest rise in inventory in the state, with 24% more listings sitting on the market in November 2022 than a year earlier.
Now, as homebuyers find themselves facing less competition, they are able to demand concessions previously unheard of during the demand frenzy of 2020-2021. This includes:
- price cuts; and
- seller concessions, including;
- buydowns, when the buyer pays a discounted monthly payment for an initial period, financed by the seller;
- mortgage points, when the buyer’s interest rate is reduced over the life of the loan, financed by the seller;
- paying inspection and origination fees;
- paying property taxes; and
- covering the costs of repairs and improvements.
But seller concessions aren’t always enough to tempt homebuyers onto the field. Now, as home prices continue to plummet, homebuyers are increasingly taking a wait-and-see approach to buying.
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Offering mortgage points? There are better ways to catch a buyer
Harnessing buyer demand, even when it’s thin
Since the market is now in the hands of buyers, real estate agents who wish to maintain a steady income in 2023-2024 will turn their focus to finding those buyers who are willing and able to buy during the downturn.
Become an expert in assisting clients with the types of sales common during a recession, including purchasing:
- homes at trustee’s sale — foreclosures;
- short sales; and
- real estate owned (REO) properties.
For seller’s agents, sellers can make their property more marketable by offering carryback financing, enabling a higher sales price, while also allowing the sellers to defer the tax bite on their profits.
Carryback financing generally offers the buyer:
- a moderate down payment;
- a competitive interest rate;
- less stringent terms for qualification and documentation than imposed by traditional lenders; and
- no origination costs or lender processing hassle. [See RPI ebook Creating Carryback Financing]
How else are you managing to attract clients during the demand downturn? Share your experiences with others in the comments below!
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