Mortgage rates have been on a downward trend since the second half of 2021, reaching their lowest levels in more than a decade in November 2023. According to Bankrate, the average rate on a 30-year fixed mortgage is 7.98%, and on a 15-year fixed-rate mortgage, it’s 7.12%. The average rate on a 30-year jumbo mortgage is 7.91%.
These low rates are good news for home buyers, who can take advantage of the cheaper borrowing costs to afford more expensive homes or save on monthly payments. But what does this mean for home sellers, who may be wondering if they should sell now or wait for better market conditions?
The pros and cons of selling in a low-rate environment
There are several factors that home sellers should consider when deciding whether to sell their homes in a low-rate environment. Here are some of the pros and cons:
- Pro: Low rates can boost buyer demand and increase home values. When mortgage rates are low, more buyers enter the market, creating more competition and driving up prices. According to the National Association of Realtors, the median existing-home price for all housing types in October 2023 was $387,900, up 15.6% from October 2022. Low rates can also help sellers who want to buy another home after selling their current one, as they can lock in a low rate for their next mortgage.
- Con: Low rates can also create challenges for sellers, such as appraisal gaps and contingency clauses. An appraisal gap occurs when the appraised value of a home is lower than the agreed-upon sale price, which can happen when home prices rise faster than appraisers can keep up. This can cause problems for buyers who need a mortgage, as lenders will only lend based on the appraised value, not the sale price. Sellers may have to lower their price, cover the difference, or risk losing the deal. Contingency clauses are conditions that buyers put in their offers, such as financing, inspection, or sale of their current home. These clauses can protect buyers from losing their earnest money if something goes wrong, but they can also delay or derail the sale process for sellers.
How to sell your home in a low-rate market
If you decide to sell your home in a low-rate market, here are some tips to help you get the best deal possible:
- Price your home right. Pricing your home too high can scare away potential buyers, while pricing it too low can leave money on the table. To find the optimal price for your home, research comparable sales in your area, consider the condition and features of your home, and consult with a professional real estate agent who knows your local market.
- Prepare your home for sale. Making your home look its best can help you attract more buyers and get higher offers. Before listing your home, declutter, clean, repair, and stage your home to highlight its strengths and minimize its weaknesses. You may also want to hire a professional photographer to take high-quality photos and videos of your home.
- Negotiate wisely. Once you receive an offer (or multiple offers), review it carefully and decide whether to accept, reject, or counter it. Consider not only the price, but also the terms and conditions of the offer, such as closing date, contingencies, earnest money deposit, and seller concessions. Be prepared to negotiate with the buyer until you reach a mutually agreeable deal.
The outlook for mortgage rates in 2023
Mortgage rates are expected to remain low for the rest of 2023 and beyond, according to various forecasts. Fannie Mae researchers predicted that 30-year fixed rates will trend down throughout 2023 and 2024. However, whether mortgage rates will drop in 2023 hinges on if the Federal Reserve can get inflation under control. Inflation has decelerated quite a bit since it peaked last June, but the Fed has indicated it’s waiting for inflation to come down further before it considers a longer pause in rate hikes.
In Canada, mortgage rates have also fallen to record lows in November 2023. The lowest nationally advertised rate for a three-year fixed mortgage is 5.74%, while the lowest variable rate is 5.95%. Canadian mortgage rates are influenced by the Bank of Canada’s policy rate, which has been held at 0.25% since March 2020. The Bank of Canada has signaled that it will not raise its rate until the second half of 2023, depending on the economic recovery and inflation outlook.
Low mortgage rates can create opportunities and challenges for both home buyers and sellers. If you are thinking of selling your home in 2023, you may want to act sooner rather than later, as low rates can boost buyer demand and increase home values. However, you should also be aware of the potential pitfalls of selling in a low-rate market, such as appraisal gaps and contingency clauses. By pricing your home right, preparing it for sale, and negotiating wisely, you can maximize your chances of selling your home successfully.
Homebuyers face record-high monthly costs amid rising rates and prices
The monthly cost of buying a home in the US has reached a new record high, according to a report by Realtor.com. The report found that the monthly cost of financing 80% of a typical home purchase jumped by $166 in October compared with the same month last year, reaching $2,405. This is the highest amount since Realtor.com began tracking this data in mid-2016.
The main drivers of this increase are the rising mortgage interest rates and the persistent shortage of homes for sale. Mortgage rates have been climbing steadily since August and are now approaching 8%, the highest level in decades. According to Freddie Mac, the 30-year fixed-rate mortgage fell to an average of 7.50% in the week ending November 9, down from 7.76% the week before, but still much higher than the 7.08% average a year ago.
Meanwhile, the supply of homes for sale remains tight, keeping home prices elevated. The median list price in October was $425,000, unchanged from last year but down from the all-time high of $450,000 in June. The number of homes for sale in October was down 2% year-over-year and 42.4% below the pre-pandemic levels from 2017 to 2019. New listings were also down 3.2% year-over-year in October.
As a result of these trends, homebuyers need an annual salary of $119,500 to comfortably afford the mortgage payments on a typical home purchase, according to Realtor.com. This is nearly double the actual median household income of $64,240 in the US.
Some homebuyers are turning to new construction as an alternative, but the pace of building is not enough to meet the demand. Others are waiting for lower rates and more inventory in 2024, but experts warn that rates are unlikely to return to the historic lows seen during the pandemic.