Opinion: Today’s real estate market is a double punch

As we polish silverware for the spring shopping season, we have to ask, will anyone be showing up for dinner? Our best months of the year are usually when the flowers bloom and the sun warms the sidewalks of our neighborhoods. In the south, we are already in the spring shopping season and although the tables are set and dinner is prepared, it is starting to get cold.

The market has been hit with a punch: inventories are falling and mortgage rates are rising.

Look at a home in Charlotte, North Carolina in 2019. A three-bedroom, three-bathroom home with 2,400 square feet in south Charlotte has a list price of $400,000. The borrower has 20% to deposit ($80,000) and obtains a conventional loan of $320,000 over 30 years.

Consider the inventory of SFR houses. Housing inventory in March 2019 of carolinarealtors.com there are 1,923 homes available in the price range of $350,000 to $500,000.

2020 data

Properties available for purchase in this inventory range in 2021 have dropped to 538 units. Here are the data for 2021.

2021 data

Here’s the catch – today there are even fewer homes in inventory and $400,000 homes are almost non-existent. The market has gone from 1,923 units to 438 for a home in this price range in just two years. The numbers for 2022 are even lower.

Let’s look at the two industries trying to navigate this storm

This $400,000 home in 2019 had a 2.8% interest rate and a $320,000 loan with an $80,000 down payment. Excluding taxes and insurance, the P&I would be $1,315.00. It’s cheaper than rent and easy to pay for most buyers.

Fast forward to March 2022 and look at this same property. The current sale price with multiple offers and low inventory has buyers priced at $550,000. What changes for the buyer? The down payment is now $110,000. The loan is now $440,000 at 20% and the rate is 4.8%; this gives us a payment of $2,309. That’s a 58% payout increase.

If one changes but the other doesn’t, we could probably see a buyer find a way to make it work, but it starts to add up when they both hit a buyer at the same time. People who prequalified for a loan in late 2021 may no longer qualify for that home in 2022 because the rate, down payment and price have gone up so much.

The loan they are now entitled to is a house that is harder to find and has more bids. Installments rising by the tens of thousands come as a shock to people who have planned for years and saved to put $40,000 aside now – finding that it’s only 10% less and that rate still has a payment HIGHER.

Mortgage apps are down

Mortgage companies are laying off staff because applications are down 40-55%. With rising rates, there is no refinancing activity and purchases currently account for over 51% of mortgage activity.

Mortgage companies also compete aggressively to attract a small number of rate-sensitive buyers.

Meanwhile, the agent who has a house listed is in the catbird seat with that line eager to make an offer. Every person online also has realtor representation, but only one gets the deal. How many came with a 3% FHA down payment or a 0% down payment VA loan that is not considered by the seller at all? How many have an old approval from January when rates were in the mid-3% range?

How many buyers will leave?

The table is set as the Fed meets to potentially raise rates again. How many people online walk away because the rate makes that house too expensive to put down? Change their loan options or disqualify them entirely? How many never come to dinner at all?

If we look at this as two separate industries, we see a punch, and it’s one we’ve been through before. Realtors saw buyers and sellers markets and loan officers saw high and low rates. We all survived.

Today, butlers stand by the door and have placed first service at each seat. The wine is open and ready, the chefs have started to dress the meat and have even chilled the desserts. The table is waiting but will someone show up?

Mortgage companies are downsizing and the volume of real estate sales is down. Both believe that pipelines keep doors open. All sales meetings are waiting for this big buying season to come, and it may not be. What if something happens as 2022 continues?

BJ Witkopf is a Mortgage Specialist at Assurance Financial.

This column does not necessarily reflect the opinion of the editorial department of RealTrends and its owners.

To contact the author of this story:
BJ Witkopf at [email protected]

To contact the editor responsible for this story:
Tracey Velt at [email protected]

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