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Why rising mortgage rates has created a stalemate in the tug-of-war between buyers and sellers in the residential real estate markets

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Why rising mortgage rates has created a stalemate in the tug-of-war between buyers and sellers in the residential real estate markets



Real estate pundits would have us believe that every home sold in America involves a lending bank or mortgage company. They run around ringing the alarm bells as if the world’s end is upon us as rising mortgage rates hit 7% for the most popular 30-year mortgage arrangement. Granted, it’s a massive bump-up from only a few months ago, especially for those home seekers under the impression a three-and-a-half percent rate was in the bag. Did you know cash buyers for residential real estate in the US is close to 31.4%? Yes, according to a reliable Redfin survey emerging in September 2022. It means that if you are a seller, nearly one in three interested prospects has the liquidity to lay the cash down without mortgage reliance.

Not only that – but the numbers also skew much higher for some geographic regions. For example, in Palm Beach County Florida:

  • 74% of SF homes and 84% of condos over $1 million sold for cash in the period after COVID-19.
  • Between 43% and 52% of buyers paid hard money for residences between $500,000 and $999,999

Other high-net-worth regions probably reflect similar numbers. So, where do these home cash buyers come from? Answer: A mixture of professional investors, wholesalers, millionaires, and well-heeled middle-class. Thus, the first takeaway is that not everything seems as gloomy as it appears.

What else is there to know about rising interest rates?

Cash buyers are not stupid. Indeed, they’re astute market navigators most of the time. Consequently, even though they have the reserves to put dollars on the table, they know rising rates are a demand dampener, and homes don’t move as quickly as in a cheap-money scenario. As a result, they bid lower, knowing that sellers are seeing a blurry sellers’ market, possibly moving in the buyers’ favor. So, is that true? Not quite. Consider the following:

  • Moving into the post-pandemic era, the real estate markets across the nation jet-propelled upward.
  • Homes doubled in price over a year, and sellers enjoyed multiple bids.
  • At the same time, many of those owners who relied on mortgage funding locked in their rates at nearly 3%.

Think about it: homeowners selling today to buy into another home relinquish the advantage of a low fixed rate and enter the 7% realm – more than twice the cost. – when rebuying. Moreover, if it’s an upgrade, the new mortgage will be a higher value in addition to charging more interest percentage. How many people do you think are willing to do that? Not many, especially if selling existing assets is tougher. As a result, home stock levels are not rising much.

Every economist will tell you that pricing is balanced when supply and demand more or less equate. In most markets, realtors will tell you:

  • Real estate inventory levels that routinely used to be enough to meet six months’ demand are still around the two-month mark
  • Home supply is the key to everything; if it remains suppressed, buyers can’t get the upper hand.

Therefore, theoretically, it’s still a sellers’ market, although it doesn’t feel like it. Savvy buyers (many with cash) are sitting on the sidelines, waiting for sellers to blink first. But conversely, the latter is unlikely to buckle for the reasons given. The net results? Stalemate, everyone watching but not doing much. Also, when price levels accelerate as they did, they don’t just melt away like quicksand (ala the 2008 financial crisis). No, the markets are on solid ground, with real estate owners having substantial equity in their assets after valuation adjustments. Nobody’s panicking!

How will it play out?

Time will tell. We sense that prices may come off a little, but much of the gains secured leading to the mortgage increases will hold. Then, at some point soon, the Fed is likely to stop raising rates, preferring to let things filter into the economy. After that, perhaps in eighteen months or two years, when inflation decreases, they’ll start loosening the reins with lower discount controls. That will probably unleash another massive demand wave (pent-up during the “wait-and-see” period) for homes and trigger increased values again. Indeed, it’s the reason property is arguably the best vertical to invest in long-term. Thus, capital appreciation should emerge as the ultimate reward for holders who exercise patience and can out-stare opportunistic buyers.

However, if you are in the market to sell quickly in Birmingham, Al, the best route is with a reputable professional like Home Buyers Birmingham, the company that can close the deal in a week and will treat you fairly. Sure, they’re in it to make a profit, but they save you commissions and much else to balance things out. Check them out. Their reviews are second to none.

Home Buyers Birmingham
1821 11th Avenue South Suite #55331
Birmingham, Alabama 35205

Why rising mortgage rates has created a stalemate in the tug-of-war between buyers and sellers in the residential real estate markets

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