Laurie Johnson

Benefits of Buying/Selling a Home Today

desk with phone and clock

As expected, the changes in interest rates have cooled the real estate market in Lake Tahoe. In 2020, the Median sale price rose from $600K to $800K. The frenzy of buyer activity and huge demand against depleted inventory drove the Median price up to $1 million during 2021.

While we can say that sales activity has slowed to historical levels, the third quarter of 2022 was the first time the Median price came down in more than 2 years.

We began 2022 with a Median Price of $1.1 million for all homes in the Tahoe Sierra Board of Realtors. By the third quarter the Median Price adjusted down to $1 million.

Waiting Out the Market

Both buyers and sellers may be on the sidelines for different reasons. Buyers are hoping to see interest rates come down, while sellers are waiting to see how high home prices will rise.

Indecision has cost buyers. They could have locked in a rate at 6.375% last month compared to 7.37% today. This cost an extra $236 for a monthly payment on a $700K loan. Sellers were in a better position to negotiate a fast closing, sometimes without contingencies and at a higher price.

Buyers negotiating on a home today will not be forced to pay a significant price increase because of multiple offers. When comparing today’s interest rate to rates over the last 50 years, the average interest rate is 7.7%, in line with today’s rate.

Buyers don't have to remove appraisal contingencis or waive repairs.  Today, buyers may even get money for closing costs or have seller pay to do a temporary 2-1 buydown of the interest rate. In this way, sellers are not forced to reduce the sale price and it is a win/win for everyone.

Waiting only costs money.

What is a 2-1 Buydown?

Sellers today may offer to pay for a 2-1 buydown on buyer's interest rate, rather than reduce the sale price.

Here is a hypothetical scenario to help better understand a 2-1 buydown at today’s rate and a loan amount of $500,000 with a 7% fixed interest rate.

During the first year, the payment for the buyer is 2% lower than their locked rate of 7% - so 5%.   The monthly principal and interest payment would be $2684.09.  After the first year, the interest rate goes up to 6% and the monthly payments go up to $2997.75. After two years, they begin paying their permanent rate of 7% and the monthly payments will be at $3326.50.

Buyers who were waiting to see if interest rates will come down can always refinance after 2 years, if rates are indeed, lower.

This arrangement allows buyers to save money on their monthly mortgage payments during those two years. During the first year of the 2-1 buydown, they save $642.41 per month and during the second year, they will save $328.75 per month.

The total saved over two years is $11,653.92.  The buyer has the ability to sell or refinance before the full two years is up and any of the leftover funds go towards principal reduction. In the end, they're not losing any of the buydown money. Sellers can hold to their asking price.

Contact me today to learn more about the many ways buyers and sellers can benefit with the current options available from mortgage lenders. While inventory doubled in the second quarter of 2022, it is beginning to trend down again. This means that it is a excellent time to list your home for sale!

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