The Perfect Storm: Why Homebuyers are Hesitant to Enter the Housing Market

A Perfect Storm

The housing market is experiencing a strange limbo, with would-be buyers across the country hesitant to enter the market. According to Redfin, existing and pending home sales last month sank to their lowest level on record, with the exception of the early months of the pandemic.

The Pandemic’s Impact

The pandemic played a significant role in the current state of the housing market. With people able to work from anywhere, mortgage rates were lower than ever, and this fueled a housing boom. However, scorching hot inflation pushed the Federal Reserve into action, and the central bank raised interest rates multiple times, indirectly pumping up mortgage rates. As a result, people stopped buying and selling homes.

Mortgage Rates: A Major Factor

Mortgage rates reached a more than two-decade high in October last year at 8.03%, and at the moment, the average 30-year fixed daily mortgage rate is 6.15%. This is a substantial difference worth thousands of dollars yearly. While mortgage rates have fallen, people are still waiting for lower rates that might not materialize.

Home Prices: A Barrier to Entry

Home prices soared throughout the pandemic and haven’t really fallen since. This makes for some pretty wild down payments. For example, if you wanted to put 20% down on a home in Los Angeles, where the average value is about $942,000, you’d need to come up with $188,400. This is a significant barrier to entry for many potential buyers.

Election Jitters and Commission Changes

Election jitters and changes to commissions are also contributing to the hesitation. According to Redfin agents, some people are waiting to see how the presidential election shakes out, while others are confused about the new National Association of Realtors’ rules. The changes to commissions are also a concern, as they may split costs with sellers or go unrepresented, which could be a disadvantage for buyers.

Confusion and Delay

The confusion over commissions is understandable, and the changes may be worse for buyers. Before the settlement, the fee was paid entirely by the seller, which meant the buyer paid zero. Now, buyers may have to split the cost or go unrepresented, which could be a significant burden.

Politics and the Housing Market

The presidential election is also having an impact on the housing market. Both candidates have shared their approaches to housing if elected, but these changes wouldn’t happen overnight. However, it’s not the first time election anxiety has been cited as a factor influencing home sales.

Conclusion

The perfect storm of mortgage rates, home prices, and election jitters is causing hesitation among would-be buyers. While some may be waiting for lower mortgage rates, others are concerned about the changes to commissions and the impact of the presidential election on the housing market. It’s a complex and challenging time for homebuyers, and it’s essential to consider all the factors before making a decision.

FAQs

Q: Why are mortgage rates so high?
A: Mortgage rates reached a more than two-decade high in October last year due to scorching hot inflation and the Federal Reserve’s actions to raise interest rates.

Q: Why are home prices so high?
A: Home prices soared throughout the pandemic and haven’t really fallen since. This is due to a combination of factors, including low inventory and high demand.

Q: What are the changes to commissions?
A: The National Association of Realtors’ settlement has changed the way commissions are paid. Instead of the seller paying the entire fee, buyers may have to split the cost or go unrepresented.

Q: How will the presidential election impact the housing market?
A: Both presidential candidates have shared their approaches to housing if elected, but these changes wouldn’t happen overnight. However, election anxiety is causing some people to wait and see how the election affects the housing market.

Q: What can I do to prepare for the housing market?
A: It’s essential to stay informed about the housing market and consider all the factors before making a decision. Consider working with a real estate agent, researching mortgage rates and home prices, and planning your finances accordingly.

Author: fortune.com

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