How inflation is changing buyer behavior – and what agents can do

Stubborn inflation, high interest rates and other negative economic indicators have cooled many real estate markets. It’s a confusing landscape for potential homebuyers, many of whom have no idea whether home prices and interest rates are rising or falling.

To complicate matters, many potential sellers who have locked in to low mortgage rates tend to stay put, especially when it comes to selling a home. tens of thousands of dollars between commissions, repairs and moving costs.

In an uncertain market, a real estate agent is an informed, responsible voice for buyers purchasing an expensive home. Here are some of the most common ways inflation affects buyer behavior and how agents can guide them toward a decision that’s right for them.

Interest rates are still causing buyers to hesitate

Although mortgage rates have fallen over the past year, they are still nearly double the historically low rates buyers enjoyed during the pandemic. As a result, many potential home buyers are delaying their home search until rates drop.

There are a few reasons why this may not be the best approach. The first is that it could take years for mortgage rates to actually drop. In the meantime, house prices have risen is expected to rise by 3.9 percent or more by summer 2026, which will erode the potential savings from lower interest rates. Waiting can only lead to marginal gains for buyers.

There are steps buyers can take now to get a better mortgage rate. One of these is aggressively comparing mortgage providers. Advise your customers to request quotes from different lenders to see who offers them the best rate.

You can also tell them about options like a rate drop, which gives them access to a lower rate if rates drop after they’ve already taken out a loan. Finally, emphasize that they can simply refinance if interest rates drop. It may be wiser to buy a home today and refinance later than to blindly hope that future interest rate cuts won’t be offset by rising prices. As a general rule, house prices will never be as affordable as they are now.

Make sure customers have realistic expectations

Buyers are almost certainly aware of higher interest rates, but may not know exactly how this will impact their purchasing power.

Experts say that every 1 percent increase in mortgage rates can reduce a buyer’s purchasing power by as much as 10 percent. For buyers in some markets, this means their budget from five years ago could be cut by as much as half.

To illustrate this effect, a recent one Redfin Report found that starter home sales are increasing rapidly, but only because many buyers are being forced to lower their budgets and look at cheaper homes. As a real estate agent, it’s important that you clearly communicate market realities to your clients so they don’t waste their time and yours looking at properties they can’t buy.

Debunk the myth of low supply

There are simply not enough homes on the market to meet demand, but housing supply has increased in the past year as a wave of new-build homes have come onto the market.

The number of starter homes has increased 13 percentpushing the inventory of these homes to levels not seen since 2016, according to Redfin’s report. In fact, for price-conscious buyers, it can be a really good time to find their next home.

Many builders are highly motivated to sell their new construction homes and may offer financial incentives such as covering closing costs or buying interest rates. In a market that is still a bit sluggish, buyers at the bargaining table may be able to negotiate for more deals.

Some buyers are waiting for a crash

With inflation driving up home prices, some mainstream housing analysts have come to believe that a housing bubble may be underway. A few experts are even predicting a housing market crash similar to 2008.

While these pessimistic forecasts are in the minority, the generally poor economic outlook among consumers has allowed them to take root. Some potential buyers are actively waiting for a crash to purchase a home at a lower price.

If you’re a real estate agent with a client waiting for a major recession to drop the price of their dream home, gently bring him/her down to the ground. A major crash is unlikely and there are costs associated with staying out of the market. While they wait for a crash that may never come, prices in many markets will likely continue to rise and miss out on potential equity. A year from now, they will probably regret their inaction.

Even in a crisis, buying a home during a recession can be complicated. Buying a home is a long process, and in the wake of a recession the market will be disrupted, with some sellers withdrawing from their properties. Finding the perfect home would be much more difficult under those circumstances.

Then there is the matter of securing financing. Lenders are scared of crashes. In the wake of the 2008 crisis, getting a mortgage was notoriously difficult. Finally, a housing crisis would have a dramatic knock-on effect on the rest of the economy. What good is lower house prices if you’ve just been fired?

Final thoughts

Underlying all this advice is a simple fact: the best time to buy a house is yesterday, and the second best time to buy a house is today. While this may sound like a cliché, it reflects a solid economic reality.

The market is unpredictable in the short term, but more predictable in the long term. It is almost impossible to predict what the market will do in the next month or the next six months, but the price has consistently risen over time.

When buyers become fixated on the short term – speculating about how prices will fluctuate in the coming months – sometimes the most responsible thing an agent can do is shift their focus to the bigger picture.

Luke Babich is the CEO of Smart real estate in Saint Louis. Connect with him Facebook or Tweet.