Top 3 Reasons Why Buyers Did Not Purchase

A recent survey revealed the top three reasons why buyers decided against purchasing a home. The findings indicate that 72.1% of buyers cited mortgage rates as a key factor, followed by inventory at 34.4% and affordability/home prices at 17.4%. These concerns highlight challenges in the current housing market, primarily driven by high mortgage rates, limited inventory, and affordability issues.

#1 Mortgage Rates (72.1%)

High mortgage rates impact purchasing power. And right now high mortgage rates are the biggest factor in why Buyers have not bought.

You would think it would be the current high prices. But people are dialing down to their mortgage payment not the price of their home as the number one reason why they haven't already purchased a home.

Good News About Mortgage Rates

Rates are expected to decrease by the end of 2025.  That's about it. Read below to see why.

Bad News About Mortgage Rates

The Bad news is that this is uncertain. The Federal Reserve may reduce the Fed Funding Rate in response to a slowing economy, but current economic indicators show strength. We won't see the Fed reducing funds as long as we have a strong economy.

So if you looking for lower rates then you are looking for a declining stock market. A declining stock market could drive investors toward fixed-rate investments, lowering mortgage rates.

Many buyers remember the low 2%-3% rates, but experts agree that such rates are unlikely to return soon. If rates drop under 6% then that may be the best buyers can hope for.

What Can A Home Buyer Do?

Options like adjustable-rate mortgages and lower FHA/VA rates should be considered to give you a lower interest rate. (Yes we are seeing FHA/VA rates lower than Conventional Rates).

Some Lenders are even discussing 40-year mortgages, which could be beneficial for those who plan to sell within a decade. After all, even with a 30 year mortgage, who lives in one house for 30 years?

#2 Inventory (34.4%)

The number of homes for sale remains low, though it has improved slightly from past years.

You've Been "Locked In"

The "Locked In" effect keeps many homeowners from selling due to their low mortgage rates, resulting in fewer homes available for buyers. This is not expected to end anytime soon.

But inventory is rising. This is due to sales slowing down combined with homes coming on the market. 

The Good News About Inventory

The good news is not quite about inventory of new homes. But home prices. They are not going up like a rocket ship anymore. So every homeowner who has overpriced their home in order to keep up with the market will be reducing. So you will see more homes falling into your price range.

In addition, there are a few segments of the market where we an over-supply of homes which is also causing a price reduction.

And finally, another survey indicates that if interest rates drop below 6% then those Sellers stuck in "Locked In" mode may consider selling. Which would also increase inventory. (However, it's a dual edge sword as this Sellers will also become Buyers and thus you will have more competition when looking at homes. So any price reduction from increase supply for this specific reason may be nullified.)

#3 Affordability/Home Prices (17.4%)

Affordability is crucial and closely linked to mortgage rates. If prices were lower, high interest rates would be less of an issue. This factor ranks third, which is positive, as mortgage rates are more likely to decline than home prices.

Home prices typically drop only when there is an oversupply of homes, which is currently mitigated by the "Locked In" effect (as previously mentioned).

Although inventory is increasing slowly due to reduced sales, significant price drops are not anticipated soon. Predictions indicate home prices may rise by 3%-5% over the next five years, with potential small reductions in specific markets.

What Should You Do About Home Prices?

Don't wait for home prices to come down because there is a high chance they won't. If you like a home and you need a place to live then buy it. Don't say to yourself that you will wait for prices to come down. While prices may only go up 2%-3% per year, this still means you will be paying more in the future. It's better to buy now (assuming you find what you want) and refinance when rates do come down (which is more likely).

Now that being said, only buy if you think you will hold onto your home for at least 2-3 years. You want to make sure you at least breakeven when you go to sell due to closing costs.

Conclusion: Act Now

Waiting for lower mortgage rates or home prices may not be wise. Prices are unlikely to drop significantly, and any decrease in mortgage rates could spur more competition in the market as more buyers enter. This increased demand could drive prices up again. Buyers who need or want to move should consider acting now rather than waiting for uncertain market conditions.

For questions about the market or advice on buying or selling, contact Carey Frankel at Phyllis Frankel Realty Group: 904-273-0125.