I haven’t written one of these in a while. There’s a lot happening the national, regional, Crozet real estate market, so I thought I’d put some thoughts to metaphorical paper.
tl;dr: the market is changing, and what we’ve become accustomed to has changed. Questions? Ask me.
I started this section in the first few days of June, and have re-written it at least
three five six times. My “econ” twitter list has been active as everyone learns about this market.
In short, I think we’re in a transitioning market rather than a transitory market; everything is different now.
This is a bit of a scary time in the real estate market. In the end, it will be OK. The move from a super-hot, multiple offer, escalating offers market to a much, much more conservative and even aggressive pricing strategy market has been fast.
One of the most important parts of what I do is help manage expectations of my clients. Two recent emails, one from a buyer and one from a seller’s agent, on a house my buyer lost out on in a multiple offer situation:
- “We have thought about it and have decided to rent for a year before buying, hopefully to give the housing market time to settle! If it is okay with you we would love to reach out again next year when we are looking again.”
- “They are all over the place, even wondering if they should just wait for other offers, which I am advising against.”
My response to the buyer was that I’ll absolutely be here next year and that I thought they were making a good decision. I’ve said the same thing to quite a few buyers recently. Twelve years ago I wrote that I think people moving to Charlottesville should rent first; I still think that’s the best advice.
My response to the seller’s agent was echoing her advice that waiting for other offers likely wouldn’t yield more offers. I suspect that those sellers were basing their expectations on the market from a few months ago rather than today’s reality.
- The market from earlier in the pandemic that may be helping sellers set their own expectations is gone. As I’ve told clients, “What your neighbor got for their house four months ago, and how fast, and with however many offers, is irrelevant.”
Ali Wolf tweeted “If someone could afford the monthly payment of a $450,000 home at a 3% interest rate, the equivalent payment at a 6% interest rate is for a $316,000 home.”
I’m writing offers now with interest rate caps of 6.5%, and I’m thinking 7% might be next. And in the future, rates will fall again, and people will refinance. We will be fine.
Take a $600K house, with 20% down, at 3.25% interest = PI of $2,089/month. Principal + interest (not including taxes and insurance).At 6%, for that $600K house, the PI is $2,878.
At 6%, a $2,086 monthly payment with 20% down will get you a $435K house.
Sellers, keep the above in mind when pricing your home; better yet, let’s talk it through together.
I’ve written “new normal” countless times over the years; whatever is happening today is our normal.
NB: I use Karl’s Mortgage calculator, and include taxes and interest; not every online mortgage calculator does.
Keep this in mind.
“Homebuyers on a $2,500 Monthly Budget Have Lost $118,000 in Spending Power This Year Amid Surge in Mortgage Rates. A buyer on a $2,500 budget can afford a $400,000 home with a 6% mortgage rate. That’s compared to a $517,000 home with a 3% mortgage rate.”
Things will be ok.
Continue reading “Crozet Real Estate Market Update – July 2022”