Get straight answers from industry professionals right here in Cincinnati such as myself and other leading realtors and local lenders, where we tackle your pressing questions and answer:
What is going on in real estate today?
There's a lot of talk about uncertainty with the economy right now, many of my clients are wondering what is the current state of the local real estate market here in the Cincinnati, Oh AND what does this mean for you as a homeowner, possible buyer, and/or seller?
Cincinnati Real Estate Market Update:
By: Kelly Gibbs, Realtor with Comey & Shepherd
Here's a deep dive into WHAT is actually happening with Cincinnati’s real estate market: housing affordability, low inventory challenges, plus HOW [and if] interest rate changes are affecting the market.
Inflation and The Future of Mortgage Rates
After nearly a decade of cheap money, higher interest rates are back as the Federal Reserve works to bring inflation down. With the Fed's heavily focusing on softening the housing market as a way to combat inflation, higher rates will slow the pace of home price growth.
Inflation is the enemy of long-term interest rates, as long as inflation is high, we’ll see higher mortgage rates and a slowdown in housing activity. Ultimately, the Fed’s ongoing efforts to tame inflation will slow homebuyer demand for mortgages and affect a buyer's purchasing power. This does not necessarily mean home values will decline. According to Ryan Kiefer, VP Branch Manager of First Community Mortgage:
"Rates going from 3% this time last year up to 7% recently eroded more than 40% from someone’s purchasing power. A buyer that qualified for a $400k house previously would now only qualify for $240k or less."
Mortgage rates will likely lower again, and have already started to do so these last few weeks, we just may not see them go as low as they once were and we may also see them come back up again. Fluctuating rates will not be uncommon as we enter into 2023. One thing is for certain though, people will always need homes. Putting that into perspective, Roland Weissman, VP of Mortgage Lending with Guaranteed Rate, says:
"Interest rates rise and fall due to a multitude of economic factors. Most people purchase a home due to some change in the needs of their family. People will continue to Buy and Sell homes regardless of interest rates."
Low Inventory and Timing the Market
The dream of homeownership has been more difficult to realize lately for those navigating the Cincinnati housing market. More homeowners are staying put longer than the once average 7 year ownership of a home, unwilling to give up their ultra low mortgage rates, it means fewer starter homes are coming available. New construction also plays a vital role in the number of homes that are sold in a year. Builders have struggled with unstable building supply costs and a lack of skilled tradespeople to build new homes. The combination of the low inventory of homes for sale and slowing new construction activity means that housing supply is likely to remain constrained across the country. Lack of housing inventory still remains a major issue for the Cincinnati housing market too. As Amy Getgey, Realtor with Comey and Shepherd, says:
"While demand may be decreasing with rising interest rates and the increased cost of housing, there is still not enough supply for the demand that exists."
For those trying to "time the market", I have to ask, is that even really possible?
There seems to be a high cost to waiting for the best time to buy or the best time to sell. The best strategy for most is not to try to time the market at all, instead make a plan to move forward with your purchase, sale, or both, as soon as it best suits you. Buyers and sellers alike have many advantages right now, as do those who are trying to do both at the same time. Scott Nelson, CEO of Comey and Shepherd Realtors, sheds some insight on this:
"I've never believed in good or bad times to buy or sell, so long as you are doing both in the same market condition. If the market is down and you sell for less, then you'll also be buying for less. If the market is up and you sell for more, then you'll also be buying for more. So it doesn't really matter."
The Role Home Equity Plays Today
Equity is the difference between what you owe on the home and its market value based on factors like price appreciation.
In today’s real estate market, many Cincinnati homeowners have far more equity in their homes than they realize due to the home price appreciation we’ve seen over the past few years. Everyone that participated in providing information for this write-up unanimously agreed we aren't anticipating a large-scale foreclosure crisis or crash like we saw back in 2008, and that’s good news for the Cincinnati housing market! Joe Koester, Loan Officer at Eagle Savings Bank, weighs in with this:
"Underwriting standards today are far more superior. Borrowers who purchased post year 2009 have a clear ability to repay."
Half of the homes in the United States with mortgages are considered to be equity rich today, meaning that the combined estimated amount of loan balances secured by those properties was no more than 50 percent of their estimated market values! Longtime agent with more than twenty plus years in real estate, John Durso with the JE Team at Comey and Shepherd Realtors, shares:
"The great recession had an extreme amount of loan defaults and foreclosures, this market does not have any of that because of the higher values of homes relative to the amounts owed."
What you need to know about buying a home right now in Greater Cincinnati...
For the past several years we have been in an intense sellers market here in Cincinnati. It still is a sellers market, however buyers are starting to gain back some control of how they can structure an offer and not give up all their rights as a buyer. Negotiating an offer today isn’t like it was a year ago or even six months ago.
Contract terms you have likely heard if you know someone who has bought or sold in the last three years were “as-is,” “no contingencies,” and an escalatory addendum or some clause about how high the buyer was willing to go over asking price. Oh, and let’s not forget, “seller to remain in possession X days or months past closing at no cost to them." These terms are not being used as often right now. Terms like contingencies, concessions and buydowns are in fashion again as interest rates have risen and markets have shifted. Significantly over-asking offers, multiple offers, and contingency waivers are seen less and less, although some situations will still warrant them.
"The pace of home price increases is slowing. Some areas and price points will be hotter than others," in Scott Nelson's opinion.
A market shift does not mean you can go out there and write low-ball offers expecting a huge discount. It is NOT that kind of market. This is NOT a crash.
"The home values will not drastically depreciate. Values should stay steady or increase very slightly. Due to demand and supply forces," states John Durso.
My number one piece of advice...
Buyers, DON'T FIXATE ON PRICE AND RATE!
Now, I'm not saying those things aren't important and shouldn't be considered. What I mean by that is you should be focusing on how you are structuring an offer. Yes, rates are higher, but a higher rate may make more sense than paying 20k, 30k, even 50k or more over list price on a property. Paying that much more over list price is permanent, rates are temporary and you can always refinance if they come back down. If they go up, well then you locked in at a time when they were lower. It's a win-win in my eyes.
"It’s among our strong opinion that mortgages written today will be refinanced to a lower interest rate within 12 - 36 months," says Joe Koester.
The market shift is giving buyers an opportunity where you can have an inspection, possibly negotiate some repairs that are needed and wouldn't have known about. Instead of trying to get a lower purchase price, some sellers may be more open to helping out with closing costs or rate buydowns and you can write that into an offer. Those things will be more valuable to you long-term than a small reduction in purchase price will be. Liz Lemon, Realtor with Kopf, Hunter, and Haas, emphasizes:
"Buyers still need to be well prepared and thoughtful when making offers. Recently updated or property specific pre-approval letters, as well as working with a local lender, is crucial as rate changes are frequent."
Buyers will need to do more homework now on loan products available to them. A 30 year mortgage may no longer make the most sense. Having these conversations early on with your lender will allow you to make sound decisions.
"The focus of many Lenders has shifted towards identifying products that will assist customers in moving into their new home with a payment they can afford. In some cases, these products may have an initial interest rate that is 1.5 - 2% lower than the average 30 year fixed rate loan.," reports Roland Weissman.
Products such as adjustable rate mortgages (ARM's), a loan product where the initial interest rate is fixed for the first X amount of years of the loan and then subject to adjustment thereafter. Take a 10/1 ARM for example, the loan would be fixed for the first 10 years. Temporary buydowns are also being offered by some lenders. An example would be a 2-1 buydown, which also provides a buyer with a discounted interest rate, but only for the first 2 years of the loan’s term. With this option, the interest rate would be 2% lower the first year and 1% lower the second. For buyers looking for their forever home or one they will be in for more than 3-5 years may opt for the security of a permanent buydown on the interest rate. Each point is equivalent to 1% of the loan amount and can be paid by buyers or potentially negotiated with a seller or builder to pay.
"A lot of lenders are offering temporary buydowns and/or adjustable-rate mortgages. What can help buyers qualify for more purchasing power is a permanent buydown on a 30 year fixed, particularly if there’s room for negotiation and the seller can pay for the buydown as part of seller paid closing costs," says Ryan Kiefer.
What you need to know about selling your home right now in Greater Cincinnati...
While it may not be the bat sh*t crazy market we saw during the pandemic, we are still in a sellers’ market due to continued inventory shortages throughout neighborhoods in the Greater Cincinnati area and the amount of pent-up buyer demand. Sellers are still getting great prices for their homes. This means you haven’t missed your window if you are still thinking about selling, but gone are the days of pulling a price out of thin air, slapping a sign in the yard, and sitting back while the offers roll in.
My number one piece of advice...
Sellers, YOU MUST DO ALL THE THINGS!
What do I mean by this you ask? Prepare your property for sale the right way. Touch up the paint. Get your curb appeal on point. Do a deep clean. Replace dated fixtures. Minimize and declutter. Stage the home. Get ahead of repairs that you've been meaning to do, even if they are small. These are all things you MUST do if you want to achieve the best possible price and terms on your home, while limiting the days on market and potential of needing a price reduction. By doing these things it will make a difference come inspection time. Yes, you heard me right, inspections are back and buyers want them!
Amy Getgey agrees, stating, "Houses are selling faster and for more money when they are move in ready and when buyers can see themselves living in the home."
Buyers are more selective about their investment since it costs more to buy a home given today’s mortgage rates. In order to separate yourself from the competition you are going to have to step up your game, so you want to hire a professional that knows how to navigate a shifting market.
Who you work with matters. DO YOUR RESEARCH. Interview agents, don't just work with someone because they are related to you, they are offering a discount on commission (ummmm, red flag!), or because they sent you something random in the mail last week. Ask friends, co-workers, and neighbors who they have worked with and look them up online to see how they market themselves and the properties they are selling. Check out reviews on Google, Zillow, and Facebook. Meet with the agent in person and ask qualifying questions to make sure they are the right fit for you.
We are back in a market where marketing matters, relationships matter, experience matters.
Homes may not sell over night anymore, but that doesn't mean multiple offers are out of the question here in Cincinnati. Some homes, when properly priced and presented, are still seeing more than one offer. For the first time in a long-time we are even seeing buyers schedule second showings on a property. Use the extra days on the market as an opportunity to drive traffic to the listing and get as many eyes on the property as possible. Sellers that are open to negotiating and working with a buyer to offset closing costs or make repairs will make it to the closing table. Offers are still coming in strong when buyers recognize value. Buyers not feeling rushed are more likely to make a sound decision when making an offer and a deal less likely to fall through.
Liz Lemon explains:
"Don't panic if your home is not sold in a couple days, sellers! It might take a week or a few weeks to sell. But, it will sell!"
Before you do anything though, consider your reasons for selling carefully. If you have been considering a move-up, the equity you have in your current home may help you get further on the buy side than you think. Interest rates are temporary. You have options, this shift in the market we are experiencing right now has opened up opportunities for you too. Downsizing? If you have been thinking of downsizing to make a move towards retirement or looking for less maintenance and more liquidity, this is an excellent time to do so while we are still in a sellers market. No matter what your reason for selling is, it's important to make that next step with proper planning and professional guidance. Partner with an agent you trust and together create a solid game plan for where you’ll go after your home is sold and the best way to go about getting there.
Final Thoughts
Trying to buy or sell a house right now can feel overwhelming, but hasn't it felt that way for awhile now? Don't let that stop you from doing the things you want or need to do. The Cincinnati real estate market will continue to provide both challenges and opportunities for some time to come. Every market has it's challenges, it's all about how you approach it.
In order to be successful in this market as a buyer or seller you need to be working with a trusted real estate advisor who can help you set your expectations based on where the market is now, not where it was over the past few years. I saw something not that long ago that was meant to be funny, but in reality really summed things up quite perfectly. It said, "Sellers are living six months in the past and buyers are living six months in the future." Staying connected to the present is the goal here instead of fixating on a hot past or a colder future. The nuances of this market are complicated, financing is complicated, contracts are complicated. Do not leave one of your largest financial decisions in the hands of an amateur or try to do it all on your own.
Those that are realistic, partner with professionals to guide them, and educate themselves throughout the process will prevail and come out ahead. Your future self will thank you!
***A special thank you to all those who participated in providing information and insight for this blog post. I enjoyed collaborating with you all!
Comments