Why rising mortgage rates has created a stalemate in the tug-of-war between buyers and sellers in the residential real estate markets

What else is there to know about rising interest rates?

Cash buyers are not stupid. Indeed, they’re astute market navigators most of the time. Consequently, even though they have the reserves to put dollars on the table, they know rising rates are a demand dampener, and homes don’t move as quickly as in a cheap-money scenario. As a result, they bid lower, knowing that sellers are seeing a blurry sellers’ market, possibly moving in the buyers’ favor. So, is that true? Not quite. Consider the following:

• Moving into the post-pandemic era, the real estate markets across the nation jet-propelled upward.
• Homes doubled in price over a year, and sellers enjoyed multiple bids.
• At the same time, many of those owners who relied on mortgage funding locked in their rates at nearly 3%.

Think about it: homeowners selling today to buy into another home relinquish the advantage of a low fixed rate and enter the 7% realm – more than twice the cost. – when rebuying. Moreover, if it’s an upgrade, the new mortgage will be a higher value in addition to charging more interest percentage. How many people do you think are willing to do that? Not many, especially if selling existing assets is tougher. As a result, home stock levels are not rising much.

Every economist will tell you that pricing is balanced when supply and demand more or less equate. In most markets, realtors will tell you:

• Real estate inventory levels that routinely used to be enough to meet six months’ demand are still around the two-month mark
• Home supply is the key to everything; if it remains suppressed, buyers can’t get the upper hand.

Therefore, theoretically, it’s still a sellers’ market, although it doesn’t feel like it. Savvy buyers (many with cash) are sitting on the sidelines, waiting for sellers to blink first. But conversely, the latter is unlikely to buckle for the reasons given. The net results? Stalemate, everyone watching but not doing much. Also, when price levels accelerate as they did, they don’t just melt away like quicksand (ala the 2008 financial crisis). No, the markets are on solid ground, with real estate owners having substantial equity in their assets after valuation adjustments. Nobody’s panicking!

How will it play out?

Time will tell. We sense that prices may come off a little, but much of the gains secured leading to the mortgage increases will hold. Then, at some point soon, the Fed is likely to stop raising rates, preferring to let things filter into the economy. After that, perhaps in eighteen months or two years, when inflation decreases, they’ll start loosening the reins with lower discount controls. That will probably unleash another massive demand wave (pent-up during the “wait-and-see” period) for homes and trigger increased values again. Indeed, it’s the reason property is arguably the best vertical to invest in long-term. Thus, capital appreciation should emerge as the ultimate reward for holders who exercise patience and can out-stare opportunistic buyers.

However, if you are in the market to sell quickly in Birmingham, Al, the best route is with a reputable professional like Home Buyers Birmingham, the company that can close the deal in a week and will treat you fairly. Sure, they’re in it to make a profit, but they save you commissions and much else to balance things out. Check them out. Their reviews are second to none.