After a pandemic stall, Seattle-area rents are rising rapidly again. According to the site Apartment List, Seattle rents are up 9.1%, while Redmond rents are up 17.8% in the past year. The situation may not improve anytime soon due to tight supply and heavy demand.
Skyrocketing rental rates may lead some renters to wonder — is now the time to leap and buy?
Buyers may find a real-estate market that’s dramatically changed in the past six months. Even as rents climb higher, mortgage interest rates have almost doubled, which seriously impacts home affordability. Purchasing power shrinks as rates rise.
In response, some buyers may find unique buying opportunities. The housing market at this time last year was in a frenzy. Interest rates were about half what they were now, but prices shot into the stratosphere as offers of $300,000 over the asking price weren’t unheard of in merciless bidding wars — homes sold in days.
“People were desperate to buy a home and we literally had hundreds of people on interest lists waiting to purchase and willing to waive all contingencies.” says Erin Fowler, senior vice president of sales and marketing at Conner Homes, a Pacific Northwest homebuilder. Conner Homes has seen plenty of market fluctuations through the years — the homebuilder’s been around since 1959.
“Common sense says that’s not a good practice,” Fowler says. “We knew that wasn’t sustainable or good for anyone.” The builder never accepted escalation clauses and asked buyers to just present their best offer.
Overall, the market correction was inevitable, she says — although the pace was faster than expected. She says this new environment has brought higher rates but more moderation in pricing. More inventory means more choice, and buyers aren’t getting into fierce bidding wars.
“We are in a transition period right now, to what should eventually be a smarter, calmer, more normal environment, and how real estate transactions should be,” she says. “And there are some great opportunities to buy a home right now.”
Programs, incentives and more
As the market transitions, so do the challenges. Buyers now may struggle to come up with the monthly payment in the higher interest-rate environment.
Interest rates are typically based on various factors, including recent market rates, property type, loan amount, loan-to-value ratio and credit score. But as rates increase, a buyer’s purchasing power decreases.
Home sellers and lenders may offer deals, including rate buy-downs, which decreases the interest rate paid over the loan’s lifetime. Conner Homes offers credits toward buyer closing costs or pays down “points,” which can then bring a borrower’s mortgage rate below 5%.
Lenders may offer unique options for self-employed borrowers, borrowers with recent credit events, special government loan programs to help those with limited incomes, and low down payments (under 3%).
Other incentives for select homes could include free appliance packages, air conditioning installation, and up to $20,000 in additional incentives. “Each community is unique with different incentives depending on what that particular buyer might need,” Fowler says.
For those already in a home and hoping to move up, sellers are now more willing to work with contingencies — something fairly unheard of at this time last year — and offer innovative solutions for hesitant buyers. Conner Homes’ new “Love it or Leave it” program allows buyers to enter a purchase and sale agreement on a new Conner home. If the buyer changes their mind for any reason within 14 days, Conner Homes refunds the earnest money and cancels the transaction.
Working with timing
Rates are still pinballing— gains and drops in the same week — which can give buyers pause. One approach is to buy now and plan to refinance later when rates inevitably drop again, Fowler says — although it’s difficult to tell whether that will be this year, next year, or in five years.
New buyers should take the first step of prequalifying, Fowler says. Prequalification is the process of finding out how much mortgage you can qualify for after accounting for your down payment, credit and income.
Some builders have special incentives through specific lenders; Conner Homes works with Wells Fargo, Homebridge and Caliber Home Loans.
Talk to more than one lender, Fowler recommends. “Every situation differs due to credit scores, down payment, debt-to-income ratios. But if you’re seeing similar rates and payments from different lenders, you know you’re probably getting the right rates,” Fowler says. Most lenders will walk you through various scenarios, such as how much you’d qualify for if rates increased by a percentage.
After your loan is approved, you can “lock” the loan for a certain amount of time. Your rate stays the same as long as you close on the purchase within the required timeframe.
“Find out what you can afford, look for programs to get you into a home, and be smart — it’s not just about the price. It’s the home you want to live in and be happy for years to come,” Fowler says.
As a locally owned business for nearly 60 years, Conner Homes shares the interests of our community in building homes responsibly, with an attention to design, a devotion to quality, and a level of integrity not found in the typical mass manufacturers.