Part II of this two-part series focuses on the rental market, migration patterns, new construction, and buyer/seller regrets for not acting sooner.
Q – How will interest rates impact the rental market?
Remember that rents were up +15% y/y in May with the median monthly asking rent hitting over $2,000 for the first time ever.
- Marr (Redfin’s Deputy Chief Economist) – “Short term, the cooling housing market will prop up demand for single-family rentals, sustaining monthly rental price growth. Long term, it could go either way.” With approximately 1M rental units currently being built, more supply could mean more affordability for renters.
Q – Will migration patterns change due to how much more expensive homeownership has suddenly become (thanks to higher mortgage rates)?
- Marr – “I expect migration to decline for the same reason home sales are declining: When mortgage rates are up, people stay put…But, as a share of housing activity, migrants may still make up a larger portion of homebuyers than before the pandemic…The pandemic boomtowns, like Austin and Boise, will be among the first to dry up because they’re so much more expensive than they used to be…Places that are still relatively affordable, like San Antonio, may become more popular.”
Q – How will interest rates and/or a recession impact new construction?
- Marr – “New construction of for-sale homes is often the first sector to take a hit from rising rates and economic cooldowns, so construction will continue to slow. Some projects that are already in progress may be converted from for-sale properties to rentals.”
Q – Advice for sellers who regret not selling sooner?
- Daryl Fairweather Redfin’s Chief Economist)- “If you’re thinking of selling your home, it’s less risky to do it now (rather) than wait until next year. I advise pricing slightly below comparable homes in your neighborhood to get buyers’ attention…A year from now, we may be in a recession and prices may be lower.”
- Marr – “Be realistic …You should be making decisions based on data, which will tell you we’re past the days of getting 30 offers and selling for six figures above list price.”
Q – Advice for buyers who regret not buying sooner when their mortgage payment would have been lower?
- Chen Zhao (Redfin’s Economics Research Lead) – “You have options. Remember that you aren’t locked into a 30-year mortgage with a 6%-plus rate. Homebuyers have the option of refinancing in the future when rates come down. I would also consider an adjustable-rate mortgage (ARM).”
- Marr – If you’re going to live in your house for seven years or longer, remember that not only can you change your mortgage rate by refinancing, but your home value will likely go up…the housing market is very unlikely to crash. Ride the ups and downs. Housing is a stable place to invest…And one great way for buyers to cope with high interest rates in a cooler market is to “buy down” the mortgage rate with higher points. That essentially means buyers pay more upfront for lower monthly interest payments.”
- Fairweather – “Take advantage of the fact that you’re less likely to encounter a bidding war than earlier in the year. You’re much less likely to pay six figures over the asking price in a competitive frenzy. that could outweigh the impact of higher mortgage rates and actually save you money.”
Thanks to Redfin.
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