For the past year we have been talking about how rising interest rates harm buyers by eroding purchasing power. Today we would like to focus on how the housing market correction risk harms sellers more than buyers.
In this example we have posted before, we illustrate a $350,000 home that falls to $300,000 in a correction. That is a 14.29% correction. Also shown was a 1.25% rise in interest rates. The net effect to the buyer was only a $2 savings per month in payment. The seller on the other hand suffered a $50,000 loss by waiting to sell.
Housing Market Correction Risk
This is one of those times where it can cost a home buyer to wait because interest rates are expected to increase in 2022. A market correction can really cost a seller to wait. Both can be hurt, but in this example the seller is hurt the most.
Next week the Fed is expected to meet to begin their interest rate hikes. It is almost certain they will hike rates .25% and some believe it may be .5% Inflation is rampant and may only get worse as fuel prices spike. Inflation hurts the low to middle income earners the hardest, so the US government is determined to slow inflation, even if it means slowing the economy.
As rising rates, rising oil prices, and rising inflation eats into consumers pocketbooks it can eventually eat into people’s ability to afford a home. Home affordability is an essential ingredient for rising prices. As homes become less affordable there is less upward pressure on prices. Remember, a 1% rise in interest rates robs buyers of 11% purchasing power. If you rob enough buyers, eventually it will hurt the market.
Florida in a Good Position
Florida is better insulated than many states at is tax friendly and a desirable place to live. More people are moving to Florida than leaving, so we are a net migration state. Other states, primarily high tax states, are losing residents to states like Florida.
Which force wins out is anybody’s guess. The point of this article is that if a buyer waits and prices go down, they are no better off. But if a seller waits and prices go down, a seller is definitely worse off. Since nobody can tell for sure how the economy will go and where housing prices will go, waiting to sell could be at the seller’s own peril.
We are not making a market prediction. We can see scenarios where prices could still rise, and others where they could correct a bit. The point is, it is not our money, and sellers are asking the question. If your home is not working for you, give Brett or Sande Ellis a call 239-310-6500. We can talk about your circumstances and discuss if now may be right for you to sell.
Nobody is Predicting a Crash
Markets do not go up forever, and corrections are not a bad thing. Crashes on the other hand are bad, and nobody I know is throwing around the crash word except for hopeful buyers wishing they had bought years ago.
To find out what your home may be worth instantly, go to www.SWFLhomevalues.com Not only will you get a pretty good idea of your home’s value, but you can also track it to see the direction of your home’s value. Each month it will send you a new value and it is fun to see if your property is appreciating or declining and by how much.
Need a place to go. We can share some creative ideas other sellers are exploring that might be a way to cash out at today’s high prices. Give Sande or Brett a call.
See last week’s article “Inflation Home Affordability Perspective”
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