With the combination of elevated mortgage rates, sky-high home prices, and scarce inventory, housing market conditions are more challenging than they have been in a long time.
That’s why we wrote this blog to better understand the motivations of both buyers and sellers in the current market, in the form of a dialogue.
Seller: Hi there! Welcome to the open house for our humble abode.
Buyer: Thanks. I've been eyeing this neighborhood for a while. But I've got some concerns about buying when mortgage rates have jumped sharply, and home prices are sky-high.
Seller: Yeah, it's a bit wild out there.
Buyer: Exactly. My monthly payments have taken off like a rocket. I think it's only fair that I pay less for the house so my payments stay the same as they would have been when rates were lower two years ago. My income is up, but nothing like how mortgage payments have moved. Does that work for you?
Seller: Well, you see, I'm just trying to get the best deal I can, and this is my nest egg. Recent comparable transactions are how we priced my house.
Buyer: But what's fair to you might not be fair to me. I want a 30% discount and a mortgage contingency. How else can I compete with a cash buyer? That’s all I’m asking for.
Seller: Why should I sell at a discount to a cash buyer? It doesn't add up. Selling for less, to someone where financing may fall through isn’t attractive to me. Plus, I'm not eager to sell now and lose my low mortgage rate.
Buyer: Fairness goes both ways! I deserve a deal too.
Seller: (chuckles) What's “fair” is whatever we both agree on. It's not just about one side.
Buyer: There's a housing shortage, you know? Not enough homes, and I didn't cause that. Where are we supposed to go?
Seller: You seem pretty motivated. Grab a hammer and go build a house!
Buyer: I can't just do that!
Seller: Why not? Don't know how to use tools?
Buyer: My wife and I both work full-time, and that’s how we can pay for the house, so I don’t have all day, for a year. Let’s compromise…there's almost no buildable land, and zoning requirements are crazy, so here’s an idea. You’ve got a ‘lot’ of extra space in your back yard, when shall we break ground?
Seller: Not In My Back Yard!
Buyer: Here we go again….There's a whole bunch of baby boomers in this neighborhood. Why won’t you downsize and move into something newly constructed? Some of these properties look great.
Seller: You mean those recently built townhomes? They are half the size of my house and cost even more! I need my space. We were stuck in inside for nearly three years during a pandemic! Why don’t you buy from someone younger who had to move for a new job?
Buyer: There’s this thing called remote work, ever heard of it? Not many people move for a new job anymore. Remember how when you took your kids to daycare, sometimes they had Pajama Day?
Seller: Pajama Day is the best. Welcome to retirement!
Buyer: Exactly, now young parents get to do it, too.
Seller: Well, it sounds like there are a lot of competing objectives here, and now I better understand your situation.
Buyer: Agreed. But hey, it's not anyone's fault. It sounds like it may take some time for these things to work themselves out.
Seller: It probably will take some time, so don’t put your life on hold just because of a home purchase. Good luck to both of us!
If you’re planning to conduct a real estate transaction, it’s a great time to update your financial plan. That’s because big financial decisions like buying a home tend to coincide with other big changes, like the arrival of children or getting closer to retirement.
Competitive market conditions also mean that it's especially important to move quickly when you find the right property, without making financial decisions you'll later come to reconsider.
Regardless of whether you’ll be upsizing or downsizing, Contact Paceline.
This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.