Why High Rates and Lower Prices Shouldn’t Deter Home Sellers
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The 2023 housing market may not be great for either buyers or sellers. But for current homeowners hoping to play both roles, it could be the right time.
When entering the housing market, current homeowners have to consider twice the (often conflicting) circumstances — they are the seller, trying to get the best price for their current home, and a buyer, trying to purchase their next house at a reasonable price point. In a “balanced” market, with roughly even amounts of buyers and sellers, that’s not an impossible feat. But when the market is heavily tilted to one group or the other, a win-win scenario is less likely.
One in 10 (10%) current homeowners plan on buying a home in 2023, according to NerdWallet’s 2023 Home Buyer Report, which asked in late December who planned on buying within the “next 12 months.” This is on par with the share of owners who said they planned to buy when we asked one year earlier. But repeat home buyers in 2023 are not facing the same circumstances as buyers in 2022.
“Mortgage rates rose so fast last year that they scuttled countless deals. People made successful offers and then, when they were ready to close six weeks later, they discovered that they couldn't afford the monthly payments because of those rates,” says Holden Lewis, NerdWallet home and mortgages expert. “This year, rates are more stable. Buyers can be choosier because they are in less of a hurry to lock their rate and close on the purchase.”
Mortgage rates may slow (but not stop) sellers
When asked what’s preventing them from purchasing a new home, 26% of homeowners cited current mortgage rates. This apprehension isn’t without cause. Rates for 30-year fixed mortgages peaked in the fourth quarter of 2022 at just over 7%, after hovering around 3% in 2020 and 2021. It’s a marked increase, but not the highest rates have gone.
Still, nearly 3 in 5 (59%) current homeowners say current rates are “unprecedented,” according to the Home Buyer Report. In fact, rates on 30-year loans have averaged around 7.75% over the past 50 years. At last check, they’re just over 6.5% — high, but below the historical average, and certainly with precedents. Looking back at 50 years of January mortgage rates and their effect on payments for a home purchased at today’s prices can provide some valuable context.
For example, a $287,000 mortgage would carry principal-and-interest payments of $1,290 if you were paying the average rate in the fourth quarter of 2012: 3.5%. However, paying 13.03%, the average rate in Q4 1982, would result in a $3,184 payment.
Home seller insight: Every fraction of a percentage point increase in rates stands to boost your monthly housing expenses, and home buyers should always take rates into consideration when setting their budget. However, higher rates don’t have to curtail your goal of selling your current home and replacing it with one better suited for your needs.
One way home sellers are at an advantage when compared with first-time buyers is they’ve generally had more of a chance to build their credit history. Qualifying for the lowest rates available requires a history of responsible credit usage and on-time payments, and having paid on a mortgage for several years can document that track record.
Repeat buyers should also keep in mind that they can refinance if rates come down. If you get a 30-year fixed-rate mortgage — the most common type — you don’t have to keep that same mortgage for 30 years. If rates come down, you can refinance it to take advantage of lower interest rates and potentially save tens of thousands of dollars over the life of your loan. Millions of homeowners did this in 2020 and 2021 when rates were so low.
Prices have fallen, but values are still up from 2020
Home prices climbed precipitously during 2021 and 2022. In fact, these prices kept many would-be sellers in their current homes — they didn’t want to pay top dollar for their next home even if they could make a handsome profit off their current one. Now, however, home prices have turned a corner. Growth has stopped, and in many cases, prices are coming down. For a current homeowner, this means a lower list price and less potential profit. But failing to list a home for this reason alone could be a mistake.
Prices went so high during the pandemic era of the last three years, it would take a pretty deep plunge to undo the gains. Nationwide, homes are valued 40% higher in January 2023 than they were in January 2020, according to the Zillow Home Value Index. Even if you take into account the effects of inflation, they’re still 21% higher.
This trend is seen in even high-demand markets, such as Austin, Texas. There, January 2020 home values grew 61% to a peak in July 2022, before beginning to fall. However, they’re still 49% higher than January 2020. Thus, owners who found a house they liked better would still be making a considerable profit if they sold today.
Home seller insight: Rising home prices have meant rising equity for you over the past few years. In most markets, those prices have stopped rising, and in some, they’ve come down. Homes are not cheap in this market, but you won’t spend as much on your next home as you would have last year, and you’ll have less competition as you enter the market as a buyer. As a seller, you’ll also be able to take advantage of the equity you’ve built, pricing your current home well above what you would have just a few years ago.
“Hire a savvy agent who will help you set a reasonable asking price,” says Lewis.
“Buyers of previous generations customarily would offer tens of thousands of dollars less than the asking price; then the two sides would negotiate to somewhere in the middle. Then, in the heated housing market of 2020 and 2021, buyers got into bidding wars and ended up paying more than the listing price.
“Now we’re in a new phase, in which buyers don’t want to make lowball offers or get into bidding wars. They'll make offers on sensibly priced, move-in ready houses.”