In our last installment of this State of the Market, we discussed where the buyers were coming from. Continuing with this idea, we think it is valuable to peek behind the curtains a little more and discuss who these buyers are and how they are feeling about the market.
CASH VS FINANCING
There is no doubt you have seen the headlines talking about spiking interest rates during the first half of the year. In some cases, rates are now twice as high as they were just a year ago. In the same period, the stock market retreated a bit from its highs, making some cash buyers unable (or not wanting) to liquidate their assets to pay in cash. How has this affected the number of people paying in cash vs financing? Despite some fluctuations in the data, the number of cash transactions has stayed consistently between 23-28% of the total sales over the course of the last few years.
FIRST TIME HOME BUYERS
Affordability has been a big talking point as prices have risen at an historic pace. There is no doubt that the rise in prices, combined with the recent rises in interest rates has affected the buying power of many buyers. Some estimates showed that when rates peaked in late June, that nationwide the average home was 27% more expensive than it was at the start of the year.The category that one would think would be affected most would be first time home buyers.Although buyers in this group have seen their purchasing power diminish, and in many cases have had to adjust their search parameters to find something more affordable, the data does not indicate that they have been bumped out of the market. In fact, first time home buyers make up a larger percentage of the market than at any time since 2017. This is great news for those looking to make home ownership a part of their financial plan for the first time.
The discussed shifts in purchasing power, added inventory, and overall economic fears, have all played a part in decreasing buyer demand. We have seen this result in fewer offers, added days on market, and more price negotiations on purchase contracts. For months, we had seen buyers becoming more patient to get into contract, but in June 2022, we saw the largest number of cancellations since the first month of the pandemic. We will be watching closely to see if this is the start of a trend, or just an anomaly like it was in Spring 2020.