A window of opportunity for home buyers in 2022 (Podcast)

August 22, 2022 - 4 min read

Rates might be up but the market is cooling

Higher mortgage rates are bad for buyers, right? Not necessarily.

In fact, according to mortgage expert Shivani Peterson, they might actually make things a little easier by cooling demand and weakening sellers’ power. And recent data shows the market is already pulling back a little.

What exactly does that mean if you’re on the market for a house? And how can you navigate higher rates successfully (and affordably)? Here’s what Peterson had to say.

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Higher mortgage rates can actually be good for buyers

“It might seem counterintuitive because it is definitely true that, as interest rates climb higher, your buying power is reduced,” Peterson said in a recent episode of The Mortgage Reports Podcast. “But for the buyers that have updated their preapproval and stayed within their approved price range, they’re running into less competition out there.”

Peterson adds that “these higher interest rates have ... priced some buyers out of the market,” which often means fewer bidding wars and more reasonable prices for those who are sticking it out.

1. You’ll face less competition

The biggest perk of higher mortgage rates is that there are fewer buyers to compete with. As rates rise, they force some people to the sidelines, making bidding wars — and the higher prices they come with — less common. As Peterson put it, “We have fewer buyers out there competing less frantically to buy homes.”

She’s right: According to Redfin, homebuyer competition is at its lowest point since the early pandemic.

  • Just 44% of buyers faced a bidding war in July, down from almost 70% earlier this year
  • Redfin’s Homebuyer Demand Index was down 14% year-over-year in mid-August
  • Active listings of homes for sale were up 4% at the same time

Investment property and second home purchases are also less attractive when rates rise. This cuts down on homebuying competition and makes things easier for first-time buyers as well. “Higher rates have made investors think twice about picking up multiple properties at once,” Peterson said. “And we’re seeing demand for second homes fizzle quite a bit now.”

2. Sellers will be more reasonable

You can also expect more reasonable price points as rates remain high. As Peterson explained, “From the seller’s point of view, they can no longer price their home wherever they want and assume that low interest rates are going to allow buyers to get into a bidding war and jack up the price.”

“We’re seeing certain success stories now for buyers that, a year ago, would have been laughable.”

Instead, Peterson said, sellers are having to “get off their pedestals a bit and price their properties more appropriately.”

Redfin says home prices have already declined 5.5% on average from their recent peak in mid-June. And according to CoreLogic, home prices will increase by only about 4.3% in the next year. That’s down from the 18.3% rate we’re seeing currently.

3. Sellers will have to negotiate more

Finally, you might also be able to negotiate more. That might mean including contingencies in your offer, bidding right at the listing price, or even asking the seller to buy down your interest rate.

According to Peterson, she’s had buyers do all of those things in recent weeks — and see their offers accepted. “We’re seeing certain success stories now for buyers that, a year ago, would have been laughable,” Peterson said.

Tips to buy a home in 2022

If you’re still on the market, it’s important to work with your lender and update your mortgage preapproval. Since rates are higher, it may impact your monthly payment and what price range you can shop in. Having a good grasp of these new numbers is critical when shopping for a home.

“If you are shopping at the max of your preapproved price range, you definitely need to get connected with your lender again and get that updated,” Peterson said. “These interest rates will impact where you qualify to buy.”

You should also talk to your agent about negotiating the purchase contract a bit — possibly including appraisal and financing contingencies, asking for seller concessions, and more.

Finally, Peterson said, act fast.

“This is a window of opportunity, and we don’t know how long it’s going to last,” Peterson said. “When interest rates come down — and I don’t know when that’ll be — what will the market look like? Will the buyers who got priced out return with vengeance and be even more aggressive this time around? Will investors come back will second home purchases heat up again? I would think it’s safe to assume that when rates come down, we’re going to see another frenzy of buying activity.”

This could be a great window for home shoppers who want to buy in 2022 but were previously priced out by bidding wars and spiking prices. If you’re ready to start house hunting, talk to your mortgage lender and get preapproved as soon as possible.

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Aly J. Yale
Authored By: Aly J. Yale
The Mortgage Reports contributor
Aly J. Yale is a mortgage and real estate writer based in Houston who has contributed to Forbes and worked for organizations such as The Dallas Morning News, PBS, NBC, and Radio Disney.