Inflation! Recession! Mortgage Rates! Here Are 4 Things to Consider if You’re Buying or Selling a Home this Year

The home buying and selling scene has felt like a roller coaster for years now. Last fall, mortgage rates hovered at about 3 percent, but flash forward 12 months and the rate has doubled to 7 percent, the highest it’s been since 2002. So, why do realtors keep saying now is the time to buy? We asked a financial planner and a real estate expert to share the pros and cons of buying (and selling) in today’s market.

Clare Trapasso is the deputy news editor at Realtor.com.

Stephanie Genkin is a Brooklyn-based certified financial planner and founder of My Financial Planner.

At long last, buyer competition within the housing market has waned. Per Trapasso, inventory may still be low, but homes are sitting on the market longer, which means buyers are once again in a position where they can mull their decision over, negotiate and insert contingencies (like a home appraisals and inspections) into contracts. This is a huge reversal from the last few years—and definitely a benefit for prospective buyers. One caveat: Buyers should still expect to face fierce competition for move-in ready homes in desirable neighborhoods with good schools, Trapasso maintains.

How to Proceed: “Shop around for a mortgage to see which lenders can offer you the lowest rates. Then, when you do find a property you like, negotiate—especially if it’s been on the market for a long time.”

The rush rush pressure may be gone, but it’s been replaced with a market that’s optimized for wealthy buyers who can pay in all cash, thanks to high mortgage rates (7 percent for a 30-year fixed, as of this writing) and stubbornly high housing prices. “Today’s buyer is spending about 75 percent more on their mortgage payments than they would have just a year ago,” Trapasso says. This means that fewer buyers can qualify for mortgages and others are sitting on the sidelines worrying about stretching their budgets when a recession looms.

How to Proceed: Be sure you have cash in the bank after closing costs, moving expenses and must-do renovations, says Genkin. “If the economy falls into a recession in the next year or so, job loss on top of monthly housing costs could spell real trouble for household finances.”

“Sellers are still asking for and receiving very high prices for their homes,” Trapasso says. “There are simply too many people who need housing and not enough homes to go around.” But this may not last for long. “In many parts of the country, we’re starting to see a buyer’s market,” Genkin says. For example, in the northeast, prices tend to soften in the colder winter months. “Sellers who have to get out of the market this year or early next will be more open to lower offers than what they could have gotten a year ago,” she adds. Quite simply, sellers will still have their pick of buyers, but higher mortgage rates and growing inflation means those buyers can’t borrow as much or go as high with their offer as they once could.

How to Proceed: As long as you don’t need to sell ASAP, this is a good time to take a beat and spruce up your house to better attract buyers come spring. “Buyers may not have spare cash to make changes right now, but may be more enticed to make a sale if it’s a place that’s move-in ready,” Genkin says.

As we said, while it’s a sellers’ market for now, the field is evening out. Market conditions are bringing back negotiating power for buyers (a good thing!) and also reducing the potential for bidding wars.

How to Proceed: Trapasso’s advice is to be realistic in your pricing. “Pricing the home even a little under the market value may attract more interest and lead to a higher sale price if there are multiple offers.” It’s time to forget about prior market conditions—and the neighbor down the street who made a killing on their property just a few months back—and be open to negotiations, contingencies and throwing in other extras to seal the deal.