By Chad Taylor, the Taylor-Made Team
Last week I wrote about how buyers change as we move from the spring market into late summer and fall. Spring buyers tend to be more competitive. They make decisions faster, stretch a little further and are often more willing to overlook imperfections if they believe they have found the right home.
Fall buyers are usually different. They tend to be more patient, more analytical and more willing to negotiate. Now there is another factor influencing that behavior: mortgage rates.
As I write this column, the latest posted national average for a 30-year fixed mortgage is 6.97%. About six months ago, in February, the average was closer to 6.05%.
That may not sound like an enormous difference, but to a buyer’s monthly payment, it is. Consider a buyer who was comfortable purchasing a $500,000 home when rates were around 6.05%.
At 6.97%, keeping roughly the same principal-and-interest payment would reduce that buyer’s purchasing power to approximately $454,000. That is about $46,000 of buying power gone without the buyer changing what they are comfortable spending each month.
The same thing happens farther up the market. A buyer who may have been comfortable around $1.5 million six months ago could find that the same payment comfort level now puts them closer to $1.36 million.
They are still a buyer. They are just no longer your buyer.
That distinction matters tremendously to sellers. Interest rates do not simply make a particular house more expensive to finance. They can quietly shrink the number of buyers shopping within an entire price range.
And that creates a ripple effect. Buyers who were shopping at one price point begin looking below it. Buyers below them do the same. Suddenly, there are fewer buyers competing for the homes above them and more buyers looking at the homes below.
This is one reason pricing becomes even more important when rates rise. If a home is already priced ahead of the market, the seller is essentially asking the buyer to absorb two premiums at the same time: a higher home price and a higher cost of borrowing the money to purchase it.
Today’s buyers are doing that math. Sometimes consciously. Sometimes simply by looking at the monthly payment their lender sends them and adjusting their home search accordingly.
This becomes especially important this time of year because it compounds the seasonal change I discussed last week. Fall buyers are already more methodical. They have often seen several homes and understand the competition.
They know what represents a great value, and they generally feel less pressure to make a quick decision. Higher mortgage rates give them one more reason to be selective.
For sellers, that does not mean dropping your price every time interest rates move. It does mean understanding that the pool of buyers at your price point can change very quickly.
Your home may not have changed. Your neighborhood may not have changed. But the amount your buyer can comfortably spend may have.
And in a market where buyers have become more patient and more price-conscious, being positioned correctly matters more than ever.
Interest rates affect affordability. But for an overpriced home, they can also raise the cost of being wrong.
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