Think of the real estate market as one big pot. Into the pot you throw in the asking price of a property, selling price, availability of properties, mortgage interest rate and your personal credit score. When you analyze all these ingredients, you’ve got a pretty good idea of the active real estate market and your ability to purchase.
Last week we discussed the Manatee County sales for the month of February, in which closed sales were down and the median selling price was up for both condos and single-family properties compared to last year.
Nationally, however, sales of single-family homes were down over twice what ours were, 22.6% compared to 10%, according to the National Association of Realtors. Nationally, the median single-family sales price fell 0.2% compared to last year to $363,000. Manatee County’s median single-family selling price was up 2.5% to $490,000 compared to last year. So far, our local market, although slowly adjusting, is outpacing the national market.
As for interest rates, as of this writing, the average 30-year fixed rate is just below 7%, which generally gives a boost to the number of sales. Remember last week we talked about buyers being “rate sensitive” – this may wake them up. However, the Federal Reserve at a March meeting raised the baseline rate by a quarter percent, hinting that they may be slowing down these regular increases. Every time there is a rate increase, we hold our breath to see what, if any, impact there will be on the home mortgage market.
I also noticed the number of cash buyers is gradually going down every month. In February, cash buyers for single-family homes were down 20.5% from a year ago and cash buyers for condos are down 23.9% from last year. It’s hard to say how much impact interest rates have on cash buyers. Buyers with cash frequently offer an all-cash contract, which enhances their negotiating ability, and then take a mortgage on the property after closing. With higher and fluctuating interest rates, that will likely change the cash buyer’s thinking on this strategy.
Finally, with interest rates higher than a year ago, credit scores are more important than ever. A small boost to your credit score can make a big impact on the cost of buying a home. Raising your credit scores in the time before applying for a mortgage is the most tangible way to reduce costs related to purchasing a home. You may not have any control over the increase in prices or lack of inventory, but credit scores are totally in your control.
The object is to get that credit score at or over 760 to obtain the most advantageous interest rate. The first thing to do is look at your credit report from all three of the credit reporting agencies. Check for errors, such as someone who has fraudulently attempted to get credit under your name, if a loan is not recorded as paid or a credit card you dropped is still showing as active.
Don’t apply for any new credit or financing until your home shopping and mortgage application is completed. If possible, pay down your debts or ask for a higher limit on your credit cards. Lenders consider how much debt you have compared to how much your line of credit is. It’s always better to have more credit available even if you don’t need it.
I never said it wasn’t complicated to buy a home and a potpourri of knowledge is essential. Shakespeare’s witches may say that the real estate market is all trouble and toil, but in the end, it’s all worth it.
