Home affordability has weakened on a national scale at the fastest pace we’ve seen in the last 25 years. How is this impacting buyers and sellers in our market?
First, let’s talk a little about what’s causing this trend. Home affordability is a metric that’s measured by the average monthly mortgage for the median sales price. There are four factors in particular that play a role in this national affordability reduction: rising interest rates, rising home prices, rising demand, and critically low inventory.
It’s common knowledge that interest rates affect affordability. Nationally, interest rates are hovering around 4.6%. This is still a really good rate, but it’s creeping closer to the 5% mark, and that number is an emotional barrier for many buyers and sellers alike. This affects affordability for millennials the most because they represent the biggest buyer pool and many of them have college loans to pay off, which means they have less to put down for a home.
Interest rates also affect inventory, which in turn causes rising prices. For any buyer thinking of moving up, downsizing, or just relocating, the incentive to do so decreases once rates rise because they probably either bought their house or refinanced it at a historically low rate and they have a principal balance on their current house that’s less than what it would take to buy a new one because prices have risen. This is why a lot of potential sellers are staying put, thus causing our low inventory.
How high have prices risen? Last March, national home prices jumped higher than we’ve seen in the last four years. In our Baltimore metro area, they’re the highest they’ve been since 2008.
With these facts in mind, it’s important that buyers and sellers work within our current climate.
If you’re a buyer and you don’t have anything to sell, be patient and don’t get emotional about the process. Our market is competitive and things are moving fast, so plan your strategy early so you don’t end up stuck in a precarious position.
If you’re a seller, whether you’re upsizing, downsizing, or relocating, I strongly suggest you do exactly what I’m advising buyers to do. Plan your strategy early and cover any and all scenarios that can play out so you have proper expectations for your home sale.
As always, if you have any other questions about our market or you’re thinking of buying or selling a home, don’t hesitate to reach out to me or anyone else on my team. We’d love to help you.