Stephanie Taylor
2022 President, Northern Wasatch Association of Realtors
Rising interest rates may be a frightening prospect for would-be homebuyers, but there are many reasons why the current housing market isn’t as spooky as it seems — even during the Halloween season.
Here are five reasons why you shouldn’t be scared of the housing market.
1. Homebuyers have the best negotiating power in years
The days of bidding wars and offers tens of thousands over asking price are over. As a home buyer, you now have negotiating power, much better housing selection and time to shop around before making an offer.
There’s also evidence that home prices are beginning to soften. In Weber and Davis counties, the average seller in September received 95% of list price. That’s down from last year when sellers received an average 101%.
The rate of price increases has also fallen. In September, median sales prices in Weber and Davis counties were up 5% and 6% respectively from last year. That’s compared to January when prices were up about 30% in each county.
Ask your Realtor whether it makes sense in your market to ask the seller for a lower price or to pay for closing costs.
2. Utah homebuyers build wealth over time
From 1976 to 2021, Utah home prices on average have increased 5.7% per year, according to the U.S. Federal Housing Finance Agency. Some years have had double-digit gains, others have had more modest increases, and a few years have seen prices fall. Over time, however, the data show Utah homes go up in value.
Even if home prices fall as real estate markets become more balanced, those who take a long-term approach are likely to see the value of their properties increase. Experts also say that any short-term price corrections are expected to be minimal because of Utah’s population growth, strong job market and housing shortage.
3. Homeowners tend to build more wealth than renters
Using Federal Reserve data, the National Association of Realtors estimates in 2022 that a homeowner’s household wealth was $320,000 versus only $8,000 for a renter. In other words, a typical homeowner’s net worth is 40 times greater than that of a renter.
Homeownership acts as a forced savings plan with a portion of each payment helping build the owner’s equity. Owners also build wealth as the property increases in value — capital gains which are tax-free up to $500,000 for married couples when you sell.
4. Homeowners are protected from inflation
A new report from the Kem C. Gardner Policy Institute found that rent prices along the Wasatch Front are increasing at an accelerated pace. From 2020-2022, the average asking rent in Weber and Davis counties increased about 11%, according to “The Changing Dynamics of the Wasatch Front Apartment Market” report. That’s up significantly from annual increases of about 3% from 2010-2020.
Homeowners are protected from these dramatic increases in housing expenses. For homeowners who have a fixed-rate mortgage, principal and interest payments remain the same, even during high inflationary periods.
Even when annual rent increases are small, the extra costs add up over time. For example, rent of $800 in 2010 would rise to $1,034 by 2020. Meanwhile, the homeowner’s payment remains constant, excluding increases in property taxes, insurance and maintenance.
5. Homebuyers have financing choices
Homebuyers can take a variety of steps to save on financing costs. Start by shopping around to see what lenders offer the best rates and fees. Research shows that buyers who get bids from multiple lenders pay less than those who go with the first quote.
You could also save by choosing an adjustable-rate mortgage with a term that matches how long you plan to stay in the home. Another option is to ask the seller to pay for an interest-rate buy-down to help lower your borrowing costs.
Once you select your mortgage, know that you’re not locked in for a full 30 years. Because most home loans don’t have pre-payment penalties, a homeowner can choose to refinance their loan should interest rates go down.
To learn more about buying in the current market, talk to a local Realtor. To find a Northern Wasatch Realtor, visit NWAOR.com.