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How to Navigate Today’s Volatile Real Estate Market

As both home prices and interest rates rise, so do concerns about buying in today’s real estate market. We sat down with expert Mike Mulhern, Assistant Vice President of Real Estate Lending at Service Credit Union, to learn more about recent real estate trends and what they mean for current and prospective homeowners.

What are the biggest trends in the real estate market right now?

Equity in residential properties has exploded over the past three years. We are seeing most of those that own a home hang on to their first lien mortgage, as they opened them at historic lows. This is stalling most homeowners from selling and trading up or downsizing in their later years. These equity rich homeowners are utilizing home equity loans or home equity lines of credit (HELOCs) to take cash out of their homes. They are utilizing this second lien mortgage to pay off other debt, complete home improvements that they have put on hold, or buy a second home or investment property.

With tools like HomeAdvantage®, buyers can now search for properties in their desired locations from the comfort of their living room, making shopping around for the right property more accessible than ever. Cash buyers account for approximately 30% of the real estate transactions in our current environment.

Does it make sense to buy now?

It make sense to prepare to buy a home now. Inventory is beginning to increase as the “hot” real estate market begins to cool. We offer a huge benefit to our members on a no cost pre-approval with a lock and shop option for 90 days. Another smart move if you are interested in purchasing real estate is to enroll in HomeAdvantage® and set yourself alerts for homes that come up for sale in your desired area. You can learn about the neighborhoods, school systems and other important factors well before you put an offer in. Properties can still move fast, so being in the know about what your options are, helps you achieve your goal.

Do you foresee interest rates going up more?

Rates have increased significantly over the past several months, and based on statements from the Fed, we expect to see that trend continue. Most feel that these rates are an overreaction to the Fed’s mission to curb inflation. The Mortgage Bankers Association predicts rates will level off later in 2023.

If you are able to find a home that you desire, in your neighborhood or across the country through HomeAdvantage®, our lending specialists will work with you to find the best fit for your situation.

If you have to buy now, what’s the best way to save?

Saving is very difficult in an inflationary period. As rents continue to skyrocket, renters need to be focused on the cost of housing and not the amount of down payment they have saved. In a progressively buyers’ market and values that will support seller closing cost concessions, utilizing our several 100% financing programs will allow future homeowners to focus on the cost of housing rather than the amount of money saved for a down payment. In some cases, 6 months of PITI (principal, interest, taxes and insurance) will be the only required money saved by the applicant.

What is causing the lack of inventory on the market?

Years of insufficient new construction housing and existing homes being financed at record low rates have contributed to our current lack of inventory. There are many new regulations that are urging municipalities to encourage affordable housing that will help in combating our current housing inventory shortage. Service Credit Union has responded to that by offering a loan structure which will allow you to first purchase the land you would like to build on to allow you some time to save up a little more before constructing a new home, designed specifically to the needs of you and your family.

Why have rates risen so rapidly?

Rates have increased to respond to high inflation that was created by Fed monetary policy during the pandemic. Most experts agree that inflation will moderate and rates will also moderate within the next 24 months.

Is it a good time to build a home instead of buying something pre-existing?

Private home building is typically reserved to those existing homeowners that have benefited from equity in their existing home and are willing to sell that home to build their dream home. Typically a new construction home will have a higher cost than an existing home and will require a larger down payment than purchasing an existing home. The cost of materials has also increased temporarily from the supply channel interruptions created by the pandemic. We are seeing materials come down from the peak and we are seeing many more new construction builds as material cost continue to recover.

Have more burning questions about the real estate market? Contact the experts at Service Credit Union.