Despite higher rates, 10% still intend to make a move. Question is: Will they?
While many consumers are squeamish about buying a home given fluctuating rates, a newly released report indicates existing homeowners have advantages over first-time buyers despite market shifts.
NerdWallet’s analysis on the state of the market for home sellers found that although homeowners may face headwinds, it could still be a good time to sell for some. The company’s data analyst, Elizabeth Renter, spoke to Mortgage Professional America in detailing some of the report’s key findings.
“Current homeowners thinking about entering the market have some advantages over first-time buyers or other non-owners,” Renter said. “Generally, speaking, they’ve had the opportunity to build a more robust credit history so they can qualify for rates at the lower end of the spectrum, and they have their current home’s equity — equity that’s still far above where it was before the pandemic despite prices beginning to come down.
“If mortgage rates on a new home are what’s holding them up, potential sellers would be wise to remember that they can refinance if rates come down. Though it’s not a strong buyer’s or seller’s market specifically, it could be one that allows current homeowners to play both sides well.”
Will mortgage rates eventually go down?
Mortgage rates emerged as a major roadblock, according to the report. When asked what’s preventing them from purchasing a new home, 26% of respondents cited the current level of mortgage rates.
The roller-coaster nature of the housing market is affecting consumers’ outlooks, she added. “We’ve seen the housing market of the past few years has been a case of extremes,” Renter said. “And I think the recent past is coloring the outlook of current homeowners. I want them to be able to step back and say, hey, it’s not as bad as you think right now.
“As a homeowner who’s thinking of selling, you have twice as much to consider and not matter when you do it, you’re going to face tradeoffs. And I think right now the tradeoffs are perhaps less extreme than if we were in a very strong sellers’ market or a very strong buyers’ market.”
What is the payment on a mortgage?
To be sure, higher rates do make a sizable difference in monthly mortgage payments. The report cites the example of a $287,000 mortgage that would carry principal-and-interest payments of $1,290 if you were paying the average rate in the fourth quarter of 2012 at 3.5%. However, paying 13.03%, the average rate in Q4 1982, would result in a $3,184 payment.
The breakneck speed of rising rates also has made an impact, Holden Lewis, NerdWallet’s home and mortgage expert, suggested: “Mortgage rates rose so fast last year that they scuttled countless deals,” he said in a prepared statement. “People made successful offers and then, when they were ready to close six weeks later, they discovered that they couldn't afford the monthly payments because of those rates.
“This year, rates are more stable. Buyers can be choosier because they are in less of a hurry to lock their rate and close on the purchase.”
Among the report’s key highlights:
- Some homeowners still plan to buy: One in 10 (10%) of current homeowners intend to purchase a home in 2023. However, Renter noted the goal is largely more aspirational than actual. “I do think it’s a significant number, but I do think they’re being overly optimistic. I don’t think 10% of current homeowners will buy this year. But I do think they came into the year very optimistic. I wasn’t surprised because we see that level of optimism at the beginning of the year.”
- Arguably the most surprising finding of the report centered on perception, casting a spotlight on current homeowners’ misconceptions about rates. Nearly three in five (59%) current homeowners categorized current rates are “unprecedented.” In fact, Renter noted, rates have averaged 7.75% over the past 50 years. Non-homeowners queried, 67% believed today’s rates to be unprecedented. “That really surprised me,” Renter said of both sets of outlooks. The margin between both respondents’ answers also came as a surprise, she said. “I thought the difference would be much bigger there,” Renter said. “Reason being if you’re a current homeowner, you have some idea of how mortgage rates work, you probably have one, you may have considered refinancing. To think that three in five homeowners still think rates are unprecedented is a little bit shocking.”
