Higher mortgage rates mean fewer buyers in a once-hot housing market
Getting ready to sell your home? Brace yourself. The housing market is cooling due to a steep rise in mortgage rates, which make owning a home more costly. So, keep your expectations in check. Don’t assume that you’ll get bidding wars, multiple offers, and buyers willing to pay way above asking price like your neighbors did when they sold a year ago.
“It’s gotten a lot more expensive to buy a home,” says Jeff Tucker, senior economist at Zillow.
And that means selling a home is a lot trickier. The culprit? Buyer sticker-shock caused by a one-two punch of higher home prices and higher borrowing costs. At the end of October, the median price of an existing single-family home was up 6.6 percent to $379,100 compared with a year ago, according to the National Association of Realtors (NAR). And in early November the 30-year fixed-rate mortgage hit a two-decade high of 7 percent, up from 3 percent a year ago, according to Freddie Mac.
As a result, monthly mortgage payments have become a lot less affordable for prospective home buyers, making it tougher for home sellers to find buyers and get deals done. At the end of September, the monthly mortgage on a typical existing single-family home with a 20 percent down payment was $1,840, up about 50 percent, or $614 per month, versus a year ago, NAR data show.
But that doesn’t mean selling a home in a slowing market is impossible. What it does mean is you will have to go the extra mile to make your house stand out from the crowd by pricing it right and spiffing it up.
Here are 10 tips to help you sell your home in a slowing real estate market.
1. Price it right.
You can’t price your home based on peak prices. Those days are gone. You must accept that the market is slowing.
So, avoid setting a high price that’s stuck in the past when homes were selling like hot cakes, as you risk having your property sit on the market. Another piece of advice: The hot-market strategy of pricing your home a tad below comparable properties with the goal of generating multiple offers and triggering a bidding war that results in a sale price way above ask price could backfire. “Today, that’s a risky move since you may only get one offer if you’re lucky,” says Judy Dutton, executive editor at Realtor.com. “If that one offer comes in at your list price and you’d strategically priced low with the hopes to sell high, you may not be happy.”
Given that peak comps are no longer realistic for many parts of the country, a better strategy is to set an asking price you’d be happy to accept, experts say. A prudent approach that should spur a faster sale is to base your ask price on the last three to five comparable sales in your neighborhood, says Angela Allison, listing agent specialist at Houwzer, a discount real estate brokerage.
2. Concentrate on curb appeal.
Home-selling basics, such as sprucing up the property so it pops when home buyers drive by or view pictures online, are even more important when there are fewer home shoppers. A fresh coat of paint, landscape upgrade and a crisp, clean look go a long way towards sending a message to a buyer that your home is well-maintained. “It has become more important to get your home in shipshape condition,” says Zillow’s Tucker.
Little fixes, such as fixing runny faucets, hard-to-open windows and other small quirks like drawers that don’t close properly, will also go a long way to reassure buyers that the house is in good condition. “These are a very traditional tips, but the news is they matter again,” Tucker says.
3. Staging the sale.
With home buyers scarce and stretched financially, sellers must work harder to give buyers a reason to make an offer. “And staging is a critical way today to reel them in,” Dutton says. Styling and furnishing the home in a way that will appeal to the most buyers is necessary in a more competitive market. “When a home is staged to look pristine and move-in ready, this gives home buyers the impression that they won’t have to spend much more money on fixing it up. This perceived cost-savings can make a big difference to budget-conscious buyers today.”
Another option: Virtual staging, or using computer software to add furniture to an empty room, gives the buyer a sense of the property’s potential, adds Houwzer’s Allison.
4. Choose renovations wisely.
Doing a big kitchen re-do or bathroom renovation may not pay off at sale time. “The fact is most upgrades will end up costing more than you’ll ever recoup when you sell,” Dutton says. One upgrade that will pay off, however, is refinishing or replacing hardwood floors, Dutton says. Homeowners spent an estimated $3,400 to refinish hardwood floors and got back $5,000 at resale, says Dutton, citing a 2022 study by the NAR and National Association of the Remodeling Industry. Similarly, homeowners spent around $5,500 installing new hardwood flooring and got $6,500 back when they sold the property. Other cost-effective improvement projects that will deliver a decent return on your investment include adding stone veneer to the exterior of the home and installing a new garage door. Surprisingly, a mid-range kitchen renovation isn’t a worthwhile investment. The average cost is $80,809, but it only recouped $45,370, or 56.1 percent of the investment, at resale, according to Remodeling magazine’s 2022 Cost vs. Value Report.
5. Timing is everything.
Despite talk of recession and the real estate market softening, there are pluses to trying to sell your house sooner rather than later. For one, you have an opportunity to make the transaction before a recession strikes and even more buyers disappear. What’s more, the inventory of homes now for sale remains tight, which increases the chances that your home will be scooped up by a buyer in the market who has limited choices. In the fall and winter “you don’t have the tire-kickers going around visiting every open house like you do in the spring,” says Allison. “They are more serious buyers.”
6. Consider offers with contingencies.
With buyers gaining more power in a slowing market, you may have to again accept contingencies, such as the buyer getting approved for a mortgage or the sale hinging on a property inspection, says Tucker. “Buyers have more negotiating power,” he says. So be prepared to trim your ask price a tad in the event the buyer finds a problem with the roof or a plumbing issue.
7. Make sure the mechanics work.
Make sure that the key mechanical systems of the home, such as the air-conditioning, plumbing, electric, hot-water heater and appliances, are all in working order. “Buyers can be a little pickier right now,” says Allison. “They want to know that things are well-maintained.”
8. Paint makes a house “pop.”
One of the most cost-effective projects, whether you do it yourself or hire a professional, is painting. A fresh coat of paint “can make an incredible difference when selling a house,” Dutton says. A strategic “pop of color” like red on the front door or painting tired kitchen cabinets a fresh white can catch a buyer’s eye, she says.
9. Be willing to negotiate.
If you don’t have multiple buyers, there’s a chance you might have to negotiate the price with the one buyer on the hook to get a deal done. And that’s OK as the housing market moves away from a seller’s market to one in which the buyer has more leverage when it comes to terms of the final deal. Trying to get last year’s higher prices on your house now will likely result in you not getting a deal done and having your home sit on the market longer. “It’s a little difficult for sellers to wrap their head around,” says Allison. “But the numbers don’t lie. Pull the (most recent) comps.”
10. Sell as-is.
If you need a quick sale, consider selling the property as-is to an investor or developer, says Josh Stech, cofounder and CEO of Sundae, a real estate marketplace that connects homeowners to a network of investors. These deals can get done quickly, as they are typically all-cash deals with no contingencies and no reason to spend the time and trouble of listing your house and getting your home ready for sale.
The good news is that in a slowing housing market, home prices don’t drop as dramatically and quickly as stock prices do. And that gives sellers a window of opportunity to sell their home at a still-strong price ahead of any more potentially serious price decline. Despite slowing sales, the NAR expects the median home price to increase by 1 percent in 2023. And real estate pros stress the housing market is not in danger of suffering a crash like it did back in 2008–09 during the financial crisis.