5 Ways Homebuyers Can Prepare to Reenter the Market

Photo by Daryan Shamkhali on Unsplash

Today’s low housing inventory, inflated home values, and high mortgage rates have forced eager homebuyers in NYC and elsewhere to the sideline.

Of the three ingredients in the homebuying recipe — inventory, price, and rate — only the latter is causing the most disappointment for buyers these days.

Since hitting a record low of 2.65% in January 2021, mortgage rates have staged a dramatic turnaround, increasing nearly five percentage points to 7.08% in 2022. The result has been higher monthly mortgage payments and a decrease in purchasing power for buyers.

The below comparison between buying a home in 2021 versus 2022 illustrates just how much more expensive owning a property has become due to rising mortgage rates:

Based on the above figures, the median price for a single-family detached home, or roughly the equivalent of a modest walk-up studio on the Upper East Side, will cost the homeowner approximately $304,000 more over the life of the loan if purchased now versus one year ago.

And since we can’t turn back time to purchase a home at last year’s interest rates, it makes the question of what’s a buyer to do now all the more pressing.

Then again, a slight shift in perspective might be all it takes to ease the sting of higher year-over-year mortgage payments.

For instance: Is it better to spend $304,000 on rent over five years for a two-bedroom apartment in a Chelsea doorman building? Or is it better to shell out this six-figure amount to cover the increased cost of owning property that may appreciate over time, build equity, and provide a nest egg in retirement?

The answer, of course, depends on the individual buyer’s circumstances. But for those who are able and willing to take on the responsibilities of homeownership, now might be a good time to buy despite the obstacles.

The most obvious solution to the problem of high mortgage rates is to wait for them to come down again. Some buyers are also hoping property prices will decrease, which would make purchasing a home more affordable over the life of the loan.

But when will this happen? (No one can say for certain.)

With that said, let’s move on to the next perspective:

Mortgage interest rates are still relatively low by historical standards. The 30-year fixed-rate mortgage averaged 8.64% in 2000, 10.21% in 1990, and 18.45% in 1981.

In other words, there’s a good chance interest rates will come down again at some point. The question is whether or not the buyer can afford to wait.

5 Ways Homebuyers Can Prepare to Reenter the Market

Prospective homebuyers who are waiting to reenter the market can do a few things to swoop in with an offer when the time is right:

1) Focus on “stale” listings

There are several reasons why a condo, coop, or detached property may last more than 60 or 90 days on the market. These “stale listings” — to use a bit of real estate lingo — may be overpriced, need significant repairs, or come with other challenges that make them unattractive to buyers.

But in a high-interest market, a stale listing may be the product of buyer wariness over higher monthly mortgage payments and not necessarily indicative of anything wrong with the property.

For a patient and prepared buyer, it may present an opportunity to negotiate a better deal. After all, the longer a property sits on the market, the more likely the seller is to entertain a lower offer.

2) Open-house attendance

This tried-and-true method of apartment hunting can help buyers keep tabs on the competition and learn more about pricing trends in their desired neighborhoods.

More importantly, open houses provide a great opportunity to meet face-to-face with real estate agents and other homebuyers who might offer helpful insights.

Sideline buyers don’t need to attend every open house in their area, but sprinkling a few into their weekend routines over the next few months can be a good way to stay in the loop and get a feel for what’s happening in the market.

3) Credit repair

Credit scores are an important factor that lenders consider when deciding whether or not to approve a loan. The higher the score, the better the chances of securing a lower interest rate.

Scores on the lower end may be improved by paying down debts, maintaining a good payment history, and using credit responsibly going forward.

Additionally, banks or credit unions, as well as these organizations, may offer free credit counseling services to homebuyers,

4) Board package prep

Buying a coop or condo in NYC usually involves a lengthy process that requires packaging certain financial documentation, employment verification, and other bits of paperwork, into a tidy “board package.”

The coop or condo board will review this packet as part of their decision-making process when it comes to approving a sale.

Buyer’s agents often prove to be invaluable resources when it comes to helping their clients put together a board package that’s likely to get greenlit. This includes everything from making several copies of the mammoth pile of documents to be submitted to the board — one for each board member — to prepping buyers for their in-person interviews.

Some documents like pay stubs and job letters are time-sensitive, so they’ll need to be put together after an offer is accepted but before the board meeting. However, other documents like tax returns, W2s, and reference letters, can be gathered well in advance.

5) The return of the international buyer

Now that COVID restrictions have eased globally, we can expect to see an influx of international buyers flooding the NYC real estate market.

Historically, these buyers have been making all-cash offers on properties in NYC no matter where these homes fall in the quality spectrum, from fixer-uppers to luxury condos. The reason foreign buyers drop so much cash — besides the fact that many of them are super wealthy — is that qualifying for a mortgage can be difficult for non-citizens who have no credit or employment history in the U.S.

The traditional domestic buyer who is financing their purchase and has excellent credit may still find it difficult to compete with an all-cash offer. Those hoping to snag a property that’s being eyed by foreign investors should consider these five tips for increasing their chances of success.

The Recap

There are a few things sideline buyers can do to find real estate success in a high-interest market:

They can monitor listings that have been sitting on the market for a while, keep attending open houses, and fix their credit scores. Additionally, they can get started on their board packages if they’re buying a coop or condo, and be aware of the return of the international buyer. With some patience and perseverance, sideline buyers are sure to find their dream homes in NYC and elsewhere.

Reach out to an Elegran advisor for more guidance on how to navigate today’s high-interest market as a prospective homebuyer, seller, or renter.

Reach out to an Elegran advisor today to learn more about the current state of the market and how to make the best decisions for your unique circumstances.

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