Real estate professionals — and even many casual observers — are well aware that the U.S. housing market has faced challenges over the past year and a half. As the Federal Reserve has worked to head off inflation, interest rates have climbed significantly. And in the housing market, this has been reflected in rising mortgage rates. The U.S. has seen a steep climb in the average 30-year fixed mortgage rate since late 2021, as it has risen from under 3% in early November 2021 to a recent peak of nearly 7% in early November 2022. But the news is not all bad …
2 leading issues for the housing market
Before we get to the good news, though, let’s take a closer look at the top current housing market challenges. According to Mark Fleming, chief economist at First American Financial Corporation, a title and insurance settlement services company, the housing market’s main problem is a shortage of homes for sale. The causes for current housing inventory shortages, according to Fleming, are two-fold:
- Many existing homeowners are currently paying mortgage rates that are lower than the ones they could attain if they chose to sell and relocate. Per data from the Federal Housing Finance Agency, the average interest rate that current U.S. homeowners are paying on their mortgages is below 4%. But the average rate offered to today’s buyers comes in at over 6%, a higher borrowing cost that is spurring a reluctance to sell and move. This phenomenon is known in the real estate industry as being “rate locked.”
- Simultaneously, these same homeowners are worried that, should they sell their current residence, they won’t be able to find another home to purchase. This fear, of course, is fueled by the current lack of available homes on the market — creating something of a vicious cycle that further limits home availability and keeps supply low.
Together, according to Fleming, these two factors are keeping many sellers in their current homes — and out of the market. In fact, Fleming says, current market circumstances have led today’s homeowners to stay in their homes for longer tenures than ever before. As of December 2022, the average U.S. homeowner had spent 10.62 years in his or her current home, marking a historic high.
What’s more, many economists believe that the average U.S. mortgage rate may hit 7% soon, largely as a result of stronger-than-expected numbers from the American economy driving continued inflation (and, in turn, the potential for more interest rate hikes moving forward). And of course, rising rates can add additional affordability challenges for prospective homebuyers.
Cause for optimism — and opportunity
On a positive note for consumers looking to buy, though, housing prices have dropped since hitting a recent market peak in the summer of 2022. According to George Ratiu, manager of economic research at Realtor.com, home prices dropped by 11% in the seven months that followed the aforementioned summer 2022 peak. In addition, industry data shows that housing market potential rose for the last two months of 2022, ending the year 3% higher than where it stood in early November.
And of course, the spring buying season is fast-approaching. U.S. home sales typically increase by more than one-third between February and March. And the busiest months for home sales — May, June, July and August — usually account for 40% of the year’s home-sales activity.
What does all of this mean for real estate marketers?
While the above-mentioned numbers may present some mixed signals, the spring housing market should be very kind to sellers. The number of houses for sale is up from last year, but it is still below pre-pandemic numbers — supporting the notion that we are in a seller’s real estate market.
And while some experts predict that mortgage rates may hit 7% soon, the rates are overall expected to gradually fall over the course of 2023. That likely means more consumers will be willing to move on any home purchases they may have been considering as this takes place.
Rate-locked homeowners and the fear of not finding something to buy are keeping home inventories low across the country. But as mortgage rates start to come down, more homes will come onto the market and supply shortages will ease.
The bottom line: Marketers who represent developers, homebuilders and individual sellers should be aggressive in the approaching spring market, as market conditions are already improving.
Brandon’s take
Here at Brandon, our take on mortgage rates and marketing is that sellers and agents will need to market payments, not rates. Car salesmen do this all the time. They tell buyers they can get them into a car for just $250 a month. What they don’t shout from the rooftop is that it’s an 18% rate and that it will take 7 years to pay off. But a lot of buyers don’t care about that part. They want what they want when they want it — and if it fits into the monthly budget/affordability range … SOLD!
Many mortgage companies are doing a bit of that right now. They are suggesting sellers offer incentives to do rate “buy downs” (that’s an up-front cost that permanently buys the interest rate down so that a prospective buyer can qualify for a mortgage/afford the monthly payment. ARMs or adjustable rate mortgages are also options for buyers who don’t plan to keep the home very long.
Could your real estate brand use the help of a team of professional marketers with extensive experience in real estate marketing? At Brandon, we understand that the key to effective real estate marketing is generating qualified leads that convert to tours, then to high-consideration prospects — all in the most compressed period of time possible. Further, our fully integrated marketing firm can help you develop a winning marketing strategy that comprehensively covers all the bases. Those include critical elements such as web design, brand strategy, creative, interactive, social media, analytics, SEO and conversion rate optimization, just to name a few — and all in one place. To get started with help ranging from a simple website analysis to a comprehensive strategy tailored to boost the performance of all of your marketing campaigns, contact us today.