The spring market is picking up, just slowly

This year's spring market has not taken off running as spring markets have over the past couple years, but things are picking up again, just slowly. Inventory is up across the area, days on market are shortening again, and increased talk of solutions to help buyers navigate the higher mortgage rates (currently hovering around 7.09% (Forbes)) have flooded the news channels. For starters, the Biden administration announced its plan to help cut mortgage insurance costs for FHA loans. According to NBC News, this change can help reduce mortgage insurance by 30% and will take effect on March 20th of this year. New construction builders who took a big hit during last year's market correction have also begun offering lower interest rates via mortgage buydowns and Adjustable Rate Mortgages (ARMs). Stated in an Axios article, some buyers are seeing builders offering rates a low as 4.5% for 30 year mortgages. Zooming out, 30% of builders have been seen offering lower rates for the first two years of a mortgage, while 32% have been seen offering buydowns for the entire life of a mortgage. It's unclear if buyers will bite with these new changes in lending, but one thing is for sure: this is a big competitive advantage that may help add fuel to the spring market. 

Do we Even Want to Know?

If you're tired of hearing about the downsides to this market shift, believe us, we are too. However, as spring approaches, there is a bright side to this market adjustment. Mortgage rates have continued to decrease and are now hovering around 6.2% from 6.42% (CNBC). Increased inventory has also provided buyers with much needed options, although home prices (while seeing decreases) are above what they were in years past. According to Keeping Current Matters, homes are still appreciating 10% above what they were in 2022. We know increased home prices isn't great for buyers, but what it does signal is that current homeowners aren't losing out on all of the built up home equity the market brought in during the pandemic. A good sign for the upcoming spring market despite news of massive layoffs and the potential recession looming over the nation. It's also worth noting that the panic from interest rate increases has mostly subsided with buyers approaching the spring rush much more frugally. According to Reuters, the Federal Reserve is also anticipated to end the interest rate hikes by March of this year. In return, sellers will need to work a little harder to market their homes, but a return on investment is still very much in the picture.

So you're telling us rates went up again?

Well, it happened again, the FED increased rates for the seventh time in December (NPR news). It was only increased by half a percentage point, but this increase has already taken an effect on the housing market. According to Bloomberg, mortgage rates rose for the first time since they started dropping six weeks ago, with the current rate for a 30-year fixed mortgage around 6.58%. 

As we mentioned in December's newsletter, inflation saw its first signs of slowing down since interest rates began increasing. While this spelled financial relief for many, it's definitely just the beginning of what is an uncertain future. Some sources, like CNBC, tell of financialists predicting that the FED won't be as prominent in determining the market in 2023, but rather companies defending their economic margins. Other sources, such as Fortune, mention home prices continuing to fall to their pre-covid era pricing. Should they continue downward, it would be the second biggest home price correction of the post-WWII era. Of course, there's more and more talk of recession with politicians and financial experts split on the severity of what may come. For a full synopsis of what 2023 may bring, click HERE for the Washington Post article.

Beat and Looking at the 2023 Market Predictions

2022 has certainly gone down as another epic year in real estate. From January to now, the Fed's fight to curb inflation has caused a 180 degree turn in the housing market. The pandemic era's booming sellers market came to a screeching halt in June when mortgage interest rates surpassed 5% and continuously increased to their now 6-7% range (CNN). Ongoing inflation and global economic supply delays still have a chokehold on necessities such as groceries, gas, appliances, building materials, electronics and more. Citizens across the US are certainly feeling the financial burn that's contributed to where the real estate market is currently: high interest rates, high home prices, higher inventory and a trickle of buyer activity. Something many are calling a "nobody's market".

However, it's not all bad news. Stated in a Realtor.com article, the 2023 market forecast details home prices potentially decreasing as buyers continue to struggle to afford homes. A recent Washington Post article also detailed inflation rates showing their first signs of letting up since the Federal Reserve began increasing them. It's still unclear if this is just a temporary change, or if the economy is really showing signs of stabilizing. Even with this news, the Federal Reserve is due to meet one more time before the years end, and rates will either remain where they are or the Fed will raise them again. Whatever happens, predictions for the 2023 market should be approached with caution as the economy slowly inches its way out of inflation. Either way, Fine Nest will continue to keep everyone informed throughout the 2023 year!

Getting Creative

With 6-7% interest rates dominating the current market, lenders everywhere are finding creative ways to help buyers finance their home loans. Fine Nest has compiled a few options that might just be the right fit for you or someone you know who is currently trying to buy.

2/1 Buydown Program
As we briefly covered in August's Newsletter, buyers can buy down their interest rates for the first two years of their loan at no additional cost to them. This is done via the 2/1 buydown program that includes a seller subsidy where the seller covers the cost of buying down the interest rate 2 percentage points for the first year and 1 percentage point for the second year. The benefit to the 2/1 buydown program is that, hopefully, buyers can refinance before year 3 to potentially lock in a lower interest rate, although it's not a guarantee. The graph below helps provide an example of what mortgage payments would look like via this program.



A downfall to the 2/1 buydown is that sellers have to agree to the seller subsidy, buyers have to be approved at the maximum payment to qualify, and there are currently no ways in which buyers can cover the cost of the buydown themselves because of federal and state laws. If you're interested in finding out more, reach out to Fine Nest so we can connect you with a lender partner.

Home Ready & Home Possible Programs
Fannie Mae’s Home Ready and Freddie Mac’s Home Possible programs provide options for lower income buyers that meet certain requirements. These programs can offer as low as a 3% down payment with some grant money also available, flexible down payment sources, and many other options.

Adjustable Rate Mortgages (ARM)
ARM's got a pretty bad rap during the 2008 market crash when homeowners were faced with non existent rate caps and overnight increases on their mortgage payments. Since then, more regulations have been put into place making ARMs a much more reliable financial option. Offering 3, 5, 7 and 10 year locked in interest rates, buyers closing on a home during times of higher interest rates can potentially secure lower interest rates using an ARM. For example, let's say a 5 year ARM began at a 5% interest rate. At the end of 5 years, the rate is adjusted at the SOFR (Secured Overnight Financing Rate) and the regulated ARM margin, usually between 2.5 - 3%. So the 5% interest rate would adjust at the SOFR + the 2.5 - 3% ARM margin to equal a whole new rate on the mortgage. The benefit to an ARM product is that, hopefully, buyers can refinance before the ARM adjusts to potentially lock in a lower interest rate. Keep in mind, there are downsides to ARMs such as running the risk that the mortgage rate will go up instead of down. For an in depth explanation, click HERE.

Assumable Loans/Mortgages
Assumable loans, which are typically FHA, VA and USDA loans, are considered a good option for buyers looking to lock in a lower interest rate. Assumable mortgages essentially allow buyers to take over a sellers loan and keep the same interest rate from when the seller purchased the home. However, there are pros and cons to this kind of financing that Fine Nest owner, Kelly Martinez, explains in this informative TikToK video.

It's official, we're in a buyers market

It's not headline news, but the real estate market has officially shifted to a buyers market, and no one's busting out the cake and confetti. With monthly numbers continuing to slow down across the nation, buyers are officially holding the negotiation cards. Many homes are going under contract at asking or lower than asking price with added contingencies and extra closing terms. Despite buyers finally having the "upper hand" after two years of a grueling sellers market, it's a bittersweet change as interest rates, inflation and high sale prices make affording a home more difficult. According to the NAR, mortgage interest rates have surpassed 6%. For a lot of people, that can mean the difference between buying or continuing to rent.

This months market report shows what we covered in September's newsletter, home sale prices are holding steady in our area. While this news is seemingly bad for buyers, it's important to remember that the real estate market fluctuates, and if you're on the fence about buying a home with a 6% interest rate, keep in mind that you can always "date the rate and marry the house." Stated in a Forbes article, financial experts are still talking about a potential recession or even stagflation in the near future. Explained in our July newsletter, recessions have historically been followed by periods of reduced interest rates which means current buyers can refinance their homes later on when interest rates inevitably decrease. If this doesn't ease concerns, Fine Nest's lender partners can help answer questions and provide financial options for home buying. Reach out to Fine Nest so we can connect you!

Will Home Sale Prices Decrease?

With the market slowing down faster than a speeding ticket can be served, buyers everywhere are wondering if home sale prices will substantially decrease anytime soon. Short answer - don't count on it.

Living in the aftermath of the historically hot sellers market in high demand areas such as NOVA /DC and southern MD has created a paradox of sorts. Reported by the NAR, we're seeing a recession in the decline of national home sales and new construction homes, but we are not seeing a recession in home sale prices. To explain this paradox, we have to go back to the height of the sellers market (2020 - spring 2022). During this time interest rates were low and that was coupled with low inventory meaning that buyers had the financial leverage to place higher offers on homes to win bidding wars. Unsurprisingly, sellers were accepting those higher offers, and over time, higher home sales resulted in neighborhoods across the area seeing an increase in home value. When neighborhood value increases, new listings that follow will be priced higher. In areas such as ours, location and consistent housing demand are likely to keep home values up if not steady. What this means is that the most realistic prognosis for the current market is that home values will likely hold, but it will be harder for homeowners to sell their homes given the current decrease in buyer demand.

To be clear, we're not saying that home prices won't go down at all. The market report shows price drops are already affecting counties in NOVA and MD, but these changes are more characteristic of a market stabilization than a widespread decrease in value. 

How to Leverage the Market Cooldown

The market numbers are in and they're not looking too hot. July is typically a busy month with buyers and sellers getting in while they can before the inevitable fall market slowdown. However, with un-budging inflation, higher mortgage rates, and decreases in mortgage applications, the downturn in units sold, pending sales, and sale prices for July's numbers really reflect the overall pessimism many have about the changing market. According to the MLS, monthly supply of inventory in Fairfax County increased from 1.3 to 1.8 YOY with days on market (DOM) steadily creeping up. Something buyers would have been elated about last year when inventory was scarce. Despite this new market reality, there are still ways buyers can leverage the market and still afford a new home. With homes staying on the market longer, buyers have more negotiation power with more and more sellers agreeing to contingencies such as home inspections, appraisals, and in some cases, paying closing costs. What this means is that buyers may have the opportunity to further buy down their interest rates in contracts where sellers agree to cover closing costs. Explained in a Rocket Mortgage article, sellers who agree to pay down closing costs can help buy mortgage points to take what would have been a higher interest rate and decrease it to something more manageable for the new owners. For example, an offer is accepted at an asking price of $600,000 with $10,000 in closing costs covered by the seller. A mortgage lender may offer to lower the buyers 5% interest rate on a home by .25% in exchange for a mortgage point (1% value of the home). The buyers can take $6,000 (1% of 600,000) from the $10,000 in closing costs and apply it to the mortgage point to help bring the interest rate down to 4.75% saving the buyers an extra $125 per month on their mortgage. So, if you're looking to win an offer, you might consider asking for closing costs to help maximize your home purchasing finances.

Interest Rates and Past Recessions

In late June, the Federal Reserve announced yet another interest rate increase. As many may know, interest rates are typically increased to circumvent ballooning inflation like what we're currently experiencing in the US. Historically, interest rate increases have also been omens for future recessions. According to The Wall Street Journal, three-quarters of global CEO's are saying we are either in a recession or will be in one within the next 12 to 18 months. While the verdict is still out on whether or not the US is truly headed for a recession, mortgage experts from Keeping Current Matters (KCM) have taken the time to compare past mortgage rates to past recessions.


Taking recession data as far back as the 1980's, KCM's graphic shows peak interest rates at the beginning of past recessions and the final interest rates when the recessions ended. Using the 2001 and 2007-2008 recessions as an example, we can see the interest rates at the beginning of these recessions was above or around today's interest rates currently hovering at 6%. Although the 2020 recession saw the lowest interest rates in over 50 years, the good times, unfortunately, never last forever. It's important to note here that interest rate hikes during inflation typically lead to reduced interest rates during a recession. However, recession does NOT always equal housing crisis. Simply put, the current market is likely shifting back to what it was before the COVID-19 pandemic. To get an in depth explanation as to why recession ≠ housing crisis, watch this informational KCM video HERE.

For buyers currently searching for a home, rate changes are likely going to be part of the next Federal Reserve's meeting in late July. It's still a hard pill to swallow each time the interest rates increase, but we hope this information is a helpful comparison for how today's market still aligns with previous decades.

Hot Sellers Market Cool Down

The seller market cool down is definitely making its first major impression on housing. Continuing from last months market report, inventory is still trending up with homes spending a little more time on the market and prices minimally budging from their sellers market increases. Stated in a Market Watch article, market predictions suggest listings are going to continue to sell, however days on market are likely to continue to increase. The culprit? Mortgage applications are down 40% compared to last year. A not so surprising result following the increase in interest rates that are currently hovering around 5.23% for a 30-year fixed mortgage. Simply put, buyer demand still exists, but with current inflation and higher interest rates, more and more buyers are getting priced out of the market.

Where's the bright side? Here at Fine Nest we're seeing more and more VA and FHA loans winning offers, as well as contingencies such as home inspections and appraisals being brought back to the negotiation table. This is a huge win for buyers who have been waving contingencies since 2020 just to secure housing. However, for houses in the goldilocks price ranges such as starter homes or homes in high demand areas, bidding wars haven't made their exit quite yet. Nevertheless, contingencies like home inspections are helpful in balancing transactions. Buyers are held accountable on the financial end while sellers are held accountable on the quality of the home they're selling. As the scales of the market continue to rebalance, Fine Nest will be here every step of the way to make sure everyone stays in the know.