Reasons for optimismThe outlook for home buyers is brighter than it has been since the beginning of the pandemic.
Buyers may find it worthwhile to seek deals on newly constructed homes because builders are likely to reduce prices or offer incentives such as rate buydowns. Here's why: Builders faced growing numbers of cancellations in 2022 as mortgage rates rose dramatically while houses were under construction. Buyers signed purchase contracts when rates were low, but rates had risen past the point of affordability by the time the homes were completed.
The Mortgage Bankers Association forecasts a more abrupt decline, with the 30-year mortgage averaging 5.2% in the fourth quarter of 2023. Listen now and subscribe: Apple Podcasts | Google Podcasts | Spotify | Stitcher | RSS Feed | Omny Studio Sturtevant, of Bright MLS, predicts that prices will rise 0.3%. She thinks we could see an upswing in demand from"folks who have taken a wait-and-see approach at the end of 2022 coming back into the market next year" as interest rates stabilize. These buyers would compete for a limited supply of homes for sale, placing a floor under prices.
'Rate lock-in' will depress inventoryAbout 75% of outstanding mortgages have rates under 4%, Sturtevant says. It would"take a lot of enticement" for these owners to sell their homes and trade their low-rate mortgages for home loans with rates of 6% or higher. In real estate lingo, this phenomenon is called"rate lock-in," and it has at least two notable effects.