The Housing Market Is Getting More Expensive. What Should Buyers Do Now?

Mortgage rates are back above 7%, putting even more pressure on home buyers already struggling with affordability. While rates have eased slightly this week, home prices continue to climb, leaving buyers and sellers trying to figure out their next move. Joining us now for more is Mike Meadler, President and CEO of Century 21 Real Estate. Thank you so much for being here, Mike. Thanks for having me, Justine. Of course. You know, looking at some of these mortgage rates numbers here, climbing above 7% and the Fed's latest decision, you know, it's really not guaranteeing relief for homebuyers right now. What's your read on the housing market and how much are high borrowing costs really holding people back right now? Yeah. I mean, I think we can break it down a couple of different ways. First off, you said it at the beginning, but it is really an affordability issue right now, I think across the market. Certainly, I don't see any time in the near term where rates are going to come back to pre-COVID or COVID levels. And I think there's a lot of different macro reasons for that. But to your point. Rates have fallen two weeks in a row. It's given us a little bit more buying power. I think the data reinforces that as rates continue to drop, it brings demand. In fact, applications were up 4%, because of those quick drops that we saw in the last two weeks. Now, that's also, I think, bringing a different kind of creativeness to the buyers in the market. Um, arms adjusted rate mortgages were up 11%. That's the highest spike we've seen in arms, uh, as a way to, uh, borrow and finance, uh, literally in the last year. But I mean, to your point, um, it is not necessarily demand challenge. It's an affordability challenge surrounded by these rates, by, uh, prices, and certainly the lock-in effect that we saw in the, uh, post COVID housing market. Yeah, exactly. I mean, for people who are trying to really understand what's really happening here, the Fed doesn't directly set mortgage rates, which are more closely tied to longer term treasury yields. So what should homebuyers really be trying to understand about that relationship? And what would need to happen for mortgage rates to really come down in a meaningful way? Yeah, I mean, I think there's a lot of things that are going against us in that respect, right? You've got a country with $2 trillion in debt. You've got midterm elections and probably not a lot of kind of meeting in the middle across the aisle in this geopolitical climate that we have. Certainly inflation has been a big issue. We know about what's happening overseas just with conflicts. But I also think people don't realize this. There's this big investment for AI. where, you know, honestly, the mortgage market is competing against big corporate borrowers for a lot of investment. And it was interesting because when the markets kind of like showed a little bit of a kink in AI stocks, you saw mortgage rates come down just two weeks ago. So I think all those things are kind of outside of our control. But I do believe right now, if you are in the market for a home, you know, and you are set up and financially stable and I don't feel good about your job. But right now, as we head towards the end of the year, there's a lot of good reasons why you should be in the market. Yeah, I was going to say that's a lot of factors that you brought up there that are all so important, weighing on just the housing market here, so many things around the world really having an impact there. We're also seeing, you know, a market where some buyers are sitting on the sidelines, while homeowners with much lower existing mortgage rates are actually reluctant to sell. So how do we break that kind of cycle and get more transactions really moving again? I mean, I think it's a great point. Let me just talk about the market right now as we sit for buyers who are actually interested in kind of attacking the market and looking at their opportunities. You know, you've got the benefit of two things. One, obviously supply, which is out there at levels we haven't seen in years and the ability of time to take more time and negotiating to making sure that you're set, to making sure that you're in the right property. And do whatever you need to do to, again, make sure this is your dream home. One, we've got supply at a record of about 1.15 million unsold homes. That's a 5% increase over last year. And believe it or not, Justine, this is the highest amount of homes on market that we've seen even back to 2019. Pre-COVID. And it's not just happening in kind of what I would call the early movers. It's happening in some of those stock markets like where we are in the Northeast, in the Midwest, in the New Yorks, the New Jerseys, the Connecticut's in the Pennsylvania. So I think if you're out there right now as we head towards the end of the year and what we what we definitely see towards the end of the year is inventory will start declining. But actually, it's been staying consistent and inclining. So now is the chance for you to kind of take a look at that and get in. I would say that there is definitely this lock-in effect that you mentioned. More than 50% of borrowers who are in pre-existing homes with mortgages are under that 4%. I know the government's trying to do a whole bunch of things. There was an executive order that I think came out earlier this week talking about ways to kind of stoke that and get the market moving for those stuck mortgage borrowers. But it is something we're going to have to get over just over time and over the natural cycle of housing. Yeah, it definitely does seem like that cycle is kind of just continuing here. Looking at it from the seller's side now a little bit more, we've seen more sellers really offering price reductions, closing cost assistance, mortgage rate buy-downs, other kind of things like that. How much leverage do buyers have in today's market and which concessions can make the biggest difference to their monthly payments? Again, especially when you're thinking about some of these first-time home buyers who might be, again, a little bit more wary of getting out there in the market. Yeah, all great questions right there. Sellers are definitely starting to meet in the middle. People talk about buyers markets and sellers markets. I think across the country, you're seeing kind of a lot of them meet in the middle. Now, again, I will say this, Justine, that all real estate is so locally driven, but to your point, you were seeing 43% of homes that get listed taking a price reduction. That's the highest we've seen in many Octobers. It's actually right on par with kind of the peak that we saw in November of 2022. So I think your negotiating power, if you have a great real estate agent on your side, is certainly in a good spot. On top of that, there are people who are doing all types of things, whether it's rate buy downs, whether it's covering closing costs. So I do think specifically in certain markets where it is a buyer's market and you're working with a great real estate agent, you should be talking about all those things as you head into a potential contract situation. All that said. All you want to make sure you can do is make sure you can afford the home, make sure that you have the right down payment. And again, make sure that it is a place where you feel secure in your job and the future, because in the long-term, your real estate investment is going to pay off for you. Yeah, such good points to keep in mind there. Things that are so important as people head into that big decision of actually going forward and buying a home. You know, if mortgage rates really stay elevated through the end of the year, what do you think that means for home prices? And what do you think people should really be keeping an eye on as they head towards the end of the year and into the beginning of 2027? Yeah. Another great question. And so what we're seeing across the country, again, it doesn't mean what's happening in New York, New Jersey, or Florida, but what we're seeing across the country is actually pending homes are starting to decrease in price. We're sitting at about a median price of about 395-ish, which is down 2%. If you look nationally on the median price on what's gotten done, it is down just percentage points over last year. Now that is all a result of, as I said earlier, that inventory that's driving the supply and demand. And as Homes sit on the market a little bit longer. That puts a little bit more pressure on price. We are the most rate sensitive market related to mortgage rates. So what I'm really looking at right now is what's going to happen. Are we even just going to see a little bit of stability where these mortgage rates kind of stay within a few basis points that might add a little bit of confidence? for buyers heading into what we call, you know, the busy spring market. So end of year, we're generally going to see a little bit of a slowdown, but I think, you know, certainly watching rates as we headed to January after the elections will be an interesting point to see what happens for our spring market. It definitely will be. We have a lot to keep our eye on and appreciate you breaking it all down for us. Mike Needler, President and CEO of Century 21 Real Estate. Thank you so much for your time today. Thanks, Justine.