May Market Update: As Interest Rates Rise Home Sellers Should Expect A Tide Shift

As the price of gas, food, building materials and electronics continues to climb, add in a hike in interest rates and volatility in the stock market and the tide begins to turn in the real estate market. The question becomes how quickly and to what degree these increases will influence home sales.

We’ve been in a strong sellers’ market for almost two years. Sellers have benefitted from having to do very little other than raise their hand to solicit multiple offers, many of which are over the list price.

Buyers have had to fight tooth and nail to make their offer stand out, often making accommodations like granting sellers a two-month rent back (usually for free) while they find another home.

While it is not as easy to measure the rudder of the real estate industry as it was to measure that of the Titanic, we’ve rarely seen the market turn around completely on a dime.

So, sellers will most likely remain in control as the market shifts, although that control will most likely loosen in the coming months.  This will mean moving to a more “normal” number of days on the market – something closer to 60, rather than five – and perhaps a plateau in pricing, rather than a neck-bending, accelerating pace.

For buyers in this market, get your pre-approval updated. Talk to the lender about the impact of a rate increase on your purchase power in terms of the monthly payment, down payment and closing costs.  A supersmart move would be to anticipate additional rate fluctuations and have the lender run the numbers at a variety of interest rates at ¼-point intervals. In any case, buckle up. This is likely going to be a bumpy ride.

For sellers, there will be more pressure on price and condition. As for price, you want to shoot for market value, not above. Market value is what a similar house to yours just sold for, not 10% above that. And if the house that just sold was completely remodeled and yours is completely original, you’ll need to adjust the price downward. And regardless of original or remodeled, you’ll have to pay attention to clutter, cleanliness and staging as the tide turns.

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