New Home Contracts Canceling
New construction contracts in Huntsville, Alabama are getting canceled by buyers so what does this mean for the Huntsville real estate market?
Due to rising interest rates, many buyers are getting priced out of their new home. The reason for this is the average mortgage for a $300,000 home, which is the average sales price right now in Huntsville, has increased from approximately $1,575 per month up to almost $2,000 per month. That's an increase of about $425 per month which equals over $5,000 per year.
Why did this happen? USA Today has recently reported that inflation hit 8.5% percent in March, that's the fastest pace in 20 years so the Fed had to act to slow down demand to ultimately start to cool down this price growth. The inventory has dropped nearly 75%, with less than 400,000 homes available for sale in the U.S. right now. So what does this all mean for the real estate market? There's really three sides to the coin to this:
1) If you're a buyer and can no longer qualify for your new home, it's sad and it’s unfair. The Fed changed their course overnight and no one was predicting this. It's really tough and we really feel for you.
2) If you're a buyer and you can still afford the payment, we recommend still buying that home. The reason for that is we're about to head into a recession and rates are cyclical. The Fed is the biggest borrower and they can't keep the rates high for too long. So you're going to lock in your purchase price so that it can't go up anymore on you. You're also going to lock in an interest rate, but your interest rate can go down as you look to refinance with these rates being cyclical and likely to come down as we start to enter a recession.
3) If you're a buyer that is looking for a home, particularly a new home, have your Matt Curtis agent get on the phone with builders agents right now to find this shadow inventory. You want to be the first to find out about these homes before they hit the market.
You might be thinking we're going to experience a real estate crash but that's not going to be the case. The average loan to value ratio right now on home purchases is down to around 55%. There's great equity in this country right now and you compare that to 2008 when we saw loan to value averages around 85%, there just wasn't a lot of equity as value started to come down. In this market with so much equity, it's very unlikely that we see very many foreclosures which is what catapulted the 2008 crash that we had over a decade ago. In other words, buyers have these large down payments and they have equity in the homes that they're buying right now.Posted by Matt Curtis on