I have heard a lot of talk lately that it is not a good Buyer’s market. My opinion is actually the complete opposite. We are in a very strong Buyer’s market!!!! With that said I do concede that everybody has their own unique situation at this time in their life and they do have to assess what is best for them. But let me point out some facts and possible options for any concerns or objections you have about buying a home in the current market.
Just over a year ago, we saw one of the hottest real estate markets in Hawaii for as long as most people could remember. This was the result of many different factors, but interest rates were one of those leading factors. Historically low interest rates fluctuating between 2% to 3% was for many the first real opportunity to become a homeowner. It also gave many existing homeowners the opportunity to upgrade, investors saw the opportunity to expand their real estate portfolio, and lenders experienced a significant surge in their refi business.
The Hawaii homebuyer thought that this was the best time to purchase. However, this could not and did not last very long. With demand for homes skyrocketing, our limited supply of land could not keep up. A very basic rule of economics is that an increase in demand and a decrease in supply leads to rising prices. And that is exactly what happened! As prices for homes across Hawaii significantly increased people kept buying wanting to lock down their own historically low rate before they would begin to rise again. In no time at all the market shifted to a very strong Seller’s market.
Buyers now faced significantly more competition when submitting offers. Sellers were receiving up to 20 or more offers for condos and townhouses, and up to 40 or more offers for single-family homes. These properties did not even need to be in good condition to get numerous offers. If the property was available, Buyers wanted it. Now all these properties were getting numerous offers and most of them were significantly above asking price.
As a Buyer, you want your offer in a strong Seller’s market to be as attractive as possible. Buyers would waive as many contingencies as possible, offer more on the purchase price and deposit stages, include a guaranty to make up the difference if the appraisal comes in too low, decline to ask for repairs or credits during the inspection period, etc. Even with all these conditions added to offers, it was still very hard for Buyers to get their offers accepted. In most cases, a Buyer would need to submit offers on multiple different properties before finally getting accepted. This means in many cases a Buyer did not get their first choice, or second, or third. They finally settled for a property that they might not have really wanted. This amazingly strong Seller’s market did finally come to an end and now the Buyer’s market has begun.
It is true that interest rates have dramatically increased over the past year, but with the reduction of competition there are many ways to turn things towards your favor. A growing trend that we have seen lately is Sellers offering a Buydown to their potential Buyers. These buydown are a fantastic opportunity for Buyers to get a more affordable monthly mortgage payment during the first years of home ownership. There are 3-2-1, 2-1, and 1-1 buydown programs being offered. What is a Buydown you are asking? Simply put, for example, a 3-2-1 Buydown decreases your interest rate on your first year of mortgage payments by 3%, the second year by 2%, and the third year by 1%. So, if your interest rate is let’s say 6.5%, the first year you pay 3.5%, the second year you pay 4.5% and the third you pay 5.5%. Once the third year is over your rate then returns to 6.5%. This can make homeownership much more affordable. It also gives time for interest rates to hopefully decrease so you can refinance at a lower rate. The Buydown is a very good way to help you save money and it is something you should speak to your lender about to see if it is right for you. Again, everyone’s situation is different, so it is important to do your research and consult with a lender.
You might not need or even want a Buydown if offered, but the main point of it is that Sellers are willing to negotiate much more than they did in the previous market. We have also seen Sellers offering credits towards Closing Costs, leased PV Buyouts, more repairs or credits for repairs, and of course overall reduction in purchase price. This is surely a change from what we saw just a year ago. You now have a much better chance of getting the home you actually want and that does not have an over-inflated purchase price brought on by a bidding war. If you are an all-cash Buyer, it gets even better. Since the Escrow process is more simplified when the Buyer does not need a mortgage, Sellers are even more inclined to offer certain perks or reductions. Furthermore, it reduces the amount of competition you have when submitting offers. CASH IS KING!!!
I hope what I have shared with you helps to answer some of those questions you have been thinking about and leads you to your determination on whether to buy in the current market. What I can say in conclusion with much certainty, is that it is definitely a Buyer’s market.
