Homebuilders in a Privileged Position
We’ve talked quite a bit on this channel about how homebuilders and developers have really been in a good privileged position in the housing market over the last two or three years and the fact that interest rates are going to drop a little bit here in the next few months might change that. It might change it for the worse for Builders, and here’s the reason why. Up until recently, the difference between existing mortgage rates that people had on their current mortgages on their homes were 2 or 3%, maybe 4%, that people borrowed money five.
The Effect of Low Mortgage Rates on Home Sales
Six, seven years ago, they got very low rates. The new rates were 7-8%, so anybody with an existing house didn’t want to sell it because they would have to give up their old mortgage. You don’t get to keep your mortgage rate on your new house; you have to get a new mortgage. So if you’re sitting in a house with a 3% mortgage or a 3.2% mortgage, and to buy a new house you have to pay 8%, you’re not going to do it. You’re just going to keep your old house, even if you hate it. So what that did was have an effect of not letting a lot of new.
Scarcity of Homes and Bidding Wars
Inventory come onto the marketplace. Homes for sale were very, very scarce, and there were bidding wars on homes. Anytime somebody decided to sell a house, everybody wanted it. So the only alternative for a lot of buyers was looking at new construction, looking at houses that builders were putting on subdivisions. So Builders loved it because they were the only game in town. Well, now, if interest rates drop a little bit, they may drop into, let’s say, the fives, right? Maybe not 5%, but maybe like 5.8%.
Interest Rates and Mortgage Differences
5.5. Well, now, if you have somebody that has a mortgage rate of like 3.8% or 4%, you’re only a point and a half difference between the two, so it’s not going to be that big of a jump. You will be back to reading in just a few seconds. In the meantime, remember that actualhuman.com offers you live one-on-one private consultation with an expert in this exact subject. We want to listen to your story, we want to hear your questions, we want to give you expert advisement of your options and tell you what we know about your.
Increasing Resale Inventory
Particular situation. Now back to reading. To go from one house to another, more homes will come onto the market in the resale inventory. That will give home buyers some alternatives to buying a new construction home. Sure, Builders are going to still sell their new houses, but they may not have the same demand level as they did before, or if they did, there might be some pricing concessions. We’ve already seen some home builders having price reductions, price cuts on new homes. That was unheard of for the last 36 months.
Price Reductions on New Homes
We’ve been monitoring the real estate market. There are many, many homes that are brand new construction that were put for sale in May or June of this year, and now it’s August, and they’re dropping the prices: $8,000, $10,000, $15,000 price reductions on houses, price cuts. This is a sign that Builders are seeing the writing on the wall, that maybe their position isn’t as great. It’s good for buyers because you have more options, and the options you have are probably going to be a little bit cheaper if you are a current homeowner.
Benefits of Lower Interest Rates for Buyers
That wants to sell your house. It still could be okay because the interest rates being lower will have more buyers out in the marketplace, so it’s kind of win-win for consumers. The losers are going to be the home sellers and maybe the mortgage companies that don’t get as much return on their investment. If you’re looking for a house or you’re looking to sell your house, put a message below and let us know what has been your experience over the last few years in your decision-making, your thought.
