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As the spring selling season gets underway in the U.S. homeowners might be wondering whether house prices have peaked, making now an ideal time to sell before prices level off or fall.
They have been watching as low inventory combined with historically low interest rates have combined to drive prices to record highs. They have waited to sell, believing that even higher prices lie ahead.
The question now is: Will prices continue to rise as spring selling starts? Or are prices starting to fall? Also, if they do fall, how long will it be before they recover?
Several views on the outlook ahead are being expressed.
Prices are destined to fall in the months ahead.
This argument goes that the Federal Reserve has already raised interest rates by a quarter percentage point, pushing mortgage rates as high as 4.95%. As a result, property prices already have started to edge downward in reaction.
Many people buy houses on the basis of how much mortgage they have to pay each month. Now, as interest rates rise, they will pay a higher monthly rate for houses that are selling at the same price as they did just a month or two ago. In effect, the house now costs more and makes it harder, or even impossible, for them to obtain a loan on their income.
They will drop out of the market or look for a lower priced home. Sellers will need to lower their prices to attract buyers.
The Fed has indicated it is likely to continue to raise interest rates regularly for the rest of the year. The reasoning, therefore, is that prices will fall steadily as the Fed raises rates.
Prices will continue to rise in the months ahead.
In spite of double-digit price increases in the last couple of years, brokers interviewed by Better Homes and Gardens Real Estate are confident that we are not in the midst of a real estate bubble. The demand for housing continues to be strong, they say.
These brokers say that the rise in interest rates is unlikely in itself to deter buyers. They add, however, that the effect might be emotional as people try to beat the market. They suggest, too, that the historical relationship between interest rates and inflation is now inverted.
They say that prices will remain high. They report that they are staying in touch with buyers’ tolerance for rising prices along with greed on the part of sellers that could cause the market to cool.
The dynamic is different from 2008, which was driven by lax lending, says Chris Masiello, CEO of Better Homes and Gardens Real Estate The Masiello Group in northern New England. The issue is one of supply and demand that is being led by demographics, he adds. Baby boomers and millennials are competing for the same properties.
Prices will cool, but will still be relatively high.
Home price increases are starting to flatten out to a degree, but are still higher than expected as a result of the low inventory, says Randy Coffman, president of Better Homes and Gardens Real Estate Wine Country Group in Northern California. Rates increase; prices go down a bit, he adds. It levels out.
In the same vein, Jack Gross, owner of Better Homes and Gardens Real Estate Cassidon Realty in Lehigh Valley, Pennsylvania, says there is a possibility that prices will level out to a degree and return to a rate of increase that is more normal.
Other brokers who were interviewed by Better Homes and Gardens Real Estate say they are seeing an increased sense of urgency among buyers. In order to “win” the home they are bidding up prices beyond normal rates of increase. As a result, they are paying now for what a home could be worth in as many as two years. The brokers add that the phrase has changed from “I purchased a home” to “I won the bid.”
Those who were unable to win the bid were kept out of the market as a result of buyer fatigue, they add.
For those sellers who decide now is a good time to sell, brokers offer these tips:
• Avoid skimping on home repairs, staging, and cleanliness.
• Hire a professional crew to clean your house. Also hire a professional handyman or repair service to perform fixture upgrades, touch-ups on paintwork, and so on. Doing so will motivate buyers to come up with their best offers and result in the house being on the market for fewer days.
• Offer a home warranty. Doing so will help to discourage buyers from a home inspection.
• Make sure that a potential buyer is qualified financially.
• Look at the terms that are offered as being as vital as the price. A cash offer with few contingencies might be a better deal than a high offer that comes with a bunch of contingencies.