As I write this, in late March 2023, I have to start by observing that the Bay Area market has been somewhat challenging for the last six months: The Federal Reserve began raising interest rates in the late summer of 2022, then the stock market got the jitters, and suddenly our historically low-interest rates were shooting up, getting as high as 8% for a bit. Buyers could no longer qualify for the same amount of mortgage funds they were getting in spring and early summer 2022, so they pulled back a bit from the market. Competition over homes dropped and the real estate market softened.
While the high-interest rates are bad news for Buyers, there is a silver lining to this cloud and this can be a great opportunity for many Buyers. Here are 10 tips for Buyers looking to get into a home today.
1. Stay focused on the long-term goal, not the short-term challenge. And act! The high-interest rate environment is temporary, and it’s almost always better to buy a home sooner than later on when prices are rising again. You’ll be able to sit back and enjoy the equity growth once you’re in a home. If you ride this market out until interest rates soften, you’ll be jumping back in when everybody else is jumping back into the market, when prices will likely be rising rapidly, again.
2. Get a great mortgage officer on your team right from the start. Figure out what you can afford at today’s interest rates by working with a skilled, creative, and trustworthy mortgage broker, and get a solid preapproval letter in hand. (I can recommend several wonderful mortgage officers who can provide that preapproval letter.) Sellers are just as unnerved by a shifting real estate market as Buyers. Sellers and their agents will gravitate to high-confidence offers supported by a solid loan preapproval letter from a known and trusted lender.
3. Do your homework before you present an offer. If a seller provides a disclosure package and – even better – if there are inspection reports in that disclosure package, review those documents closely before writing an offer, and try to figure out whether you can confidently remove the inspection contingency from your offer on that basis. I will never direct a buyer to remove their inspection contingency as part of an offer, because that’s a decision only a buyer can make, but I will advise buyers of the reality that an offer with fewer contingencies is going to appeal to Sellers in this shifting market. Sellers will often accept a lower sale price if an offer has some contingencies removed because that’s a less “risky” offer in Sellers’ eyes.
4. Know your market data. Don’t expect “fire sale” home prices but do expect your agent to do the price research on your chosen neighborhood or a home you’re considering. Your agent should show you the price patterns in the area, and tell you how those numbers translate to the sale price of current listings. The data doesn’t lie.
5. Don’t get discouraged. Even in this high-interest rate market, a surprising number of buyers have enough cash to be minimally affected by the rising interest rates. They will be competing with you over the more hotly desired homes. We live in an area that is in almost perpetual high demand and has inadequate supply (too few homes) to meet that demand. That dynamic remains even in our current market. So you may have competition out there, but take heart knowing that it’ll be less competition than there was this time last year.
6. Remember that rates are very likely to come down again – perhaps dramatically. Some economists have predicted we’ll see rates back down to around 4.5% by late summer or fall 2023. Nobody knows for sure, but if you buy today, you’ll be in a position to shop for the lowest interest rates as they come up. You will not be married to today’s interest rates. The phrase of the season is, “Marry the house, but date the rate.”
7. Tour properties on rainy weekends! It is human nature to want to stay home out of those drenching rains we’ve been having lately. Sure enough, the weather on an open house weekend can dramatically limit the number of Buyers who will head out to look at that sexy little cottage you’ve had your eye on. With fewer Buyers seeing that home, you’ll have fewer offers competing against yours. Let the rain keep other Buyers away, while you head out to tour the home you’re going to make your own.
8. Stay on top of new listings. Even amid high-interest rates, the more sought-after listings are selling after only a few weekends on the market. The quick pace of our real estate market is largely unchanged today, compared with what it was a year or two ago. To get yourself into a new home, you’ll need to keep a close watch on new listings and ask your agent to preview the homes or take you around on a private tour regularly. I generally like to tour homes with my clients once a week, once my Buyers get focused on what they’re looking for. This is how we keep our fingers on the pulse of the market and don’t miss your perfect home.
9. Look at every property with resale value in mind, even if you expect to live there “forever”. This applies in any market but is especially important to watch for in a tough market like today. Buyers sometimes make the mistake of attributing a low price to the economy (which will recover), when it is more related to the poor quality of the property or location (which may not recover). There are always homes available to purchase on the lower end of the market homes with serious structural issues being sold as-is, homes situated just next to a noisy freeway overpass or a raucous nightspot, or in an area of very high violent crime statistics. In a tougher economy, you may find especially great deals among these listings. The fixer-upper, for instance, can be fixed up and you may gain some equity as long as you run the numbers and don’t overpay for the property. The property in a challenged location might be harder to resell, though. Some “deals” may be available and highly affordable in today’s real estate market, but don’t be seduced by a low price. Be sure you’ll be able to get full equity growth, full enjoyment of the property while you own it, and a good price at resale.
10. Get expert help: Work with a real estate broker who has a track record of helping clients succeed through market highs and lows. Your broker or agent should know all of the above points and more. Your broker should have strong client testimonials that document stellar past performance. Your broker should emphasize achieving your goals above all others. Your broker should offer you housing and market expertise, demonstrated negotiation skills, a solid understanding of market data and trends, and infallible ethics. Your broker must have the organizational skills to keep your critical purchase and escrow timelines on track. Your broker should commit to regular communications and answering all your questions. Your broker should be there to support, educate and inform you at every turn so that you can confidently make the decisions necessary to get you into your future home.
