Life moves on, and so does the housing market – and just like life, the housing market has its good times and bad times.
When mortgage rates were under 3% at the end of 2021, there were 15 million active primary mortgage loans in the U.S., according to Intercontinental Exchange data. As of this July, there were under 12 million, proving that some homeowners were willing to let go of their 3% mortgages and move on with their lives.
On Sept. 16, the Federal Reserve increased rates by a quarter point in its continuing effort to control inflation. Mortgage rates have already reached 7% or are closing in on it. The last time I checked, at the end of September, every major lender reported rates at or over 7%.
So, what is the fallout to the real estate market with another milestone rate hike after economists predicted just the opposite last year? Financially, another quarter point for a long-term loan like a home mortgage is not highly significant on a monthly basis, but it is very significant for the overall interest of the loan over the course of 30 years.
More important to the real estate market are the buyers who are further spooked by a disappointing real estate market and decide to sit out yet another year or more. At best, buyers are likely to take a pause if they’re not already committed to a contract of sale.
The higher the interest rates, the smaller the pool of buyers, and more obstacles are thrown at the chance of selling your property. Sellers can no longer count on a fast sale with buyers walking away from homes that are overpriced or in poor condition.
One of the biggest mistakes sellers make is believing their home is worth more than others on the market. Sellers need to acquire a critical eye when comparing their property to the competition. This is why real estate professionals always stress making your home as neutral as possible, making both minor and major repairs and keeping in mind that buyers may have moved their price point down and are looking for a price reduction.
Buyers may be catching a small break in qualifying for a mortgage. In September, Fannie Mae and Freddie Mac approved all lenders to use VantageScore 4.0 – an alternative credit scoring model used for car loans and credit cards – in addition to the three credit reporting agencies, Equifax, Experian and TransUnion, that lenders can use.
The difference in credit scoring models is that the classic FICO model is a snapshot at a single moment, while VantageScore 4.0 analyzes 24 months of trended balances and payment data. The highest of the resulting FICO credit scores ranging from 300 to 850 will be used by lenders to secure the most favorable mortgage rate.
Buyers who already have a high credit score may not benefit from using VantageScore 4.0; however, borderline borrowers could be pushed into a more favorable rate category with VantageScore 4.0.
Despite the housing market’s getting one hit after another, buyers and sellers still need to move on with their lives. The economy is a wave that is constantly changing and crashing on the shore, and the key is to just get up and swim back out.
