Concerns about rising interest rates discouraging homebuyers from entering the market and driving home prices down proved partly right as buying power started to drop. But the part about prices being driven down largely hasn’t played out the way many expected. Instead, it’s had the effect of changing the types of transactions we see happening.
Current economic reports show that home prices held steady across the country in the third quarter of 2023 as existing homeowners increasingly chose to hold onto their properties in the face of interest rates climbing, at a time when new home inventory had also increased dramatically. These simultaneous events resulted in a jump by 12.3 percentage points to a record high of 30.6 percent of all sales being new homes nationwide.
The increase was partly attributed to developers offering incentives like rate buydowns to help people qualify for their homes, but the builders I represent locally haven’t needed to resort to such measures to get projects like the townhome development at Darlington Lane in Soquel to sell. And interestingly, the largest (and highest priced) model homes have been moving the fastest, with only one still available as of this writing.
This surprising result was driven in part by the increasing number contingent offers we have seen by buyers with equity built up in their current homes. And it turns out this has been a concession that the builder can make without sacrificing their bottom line, since unlike a typical seller, they literally have another home next door that can still be offered while they wait for the buyer to get their own place sold, so buyers moving laterally are often able to make the purchase with little to no need for a loan.
Speaking of loans, lenders have pivoted to offer broader options to help keep homebuying accessible to those who need a loan, with one of the more resourceful mortgage brokers I know citing as many as ten different programs that enable borrowers to access their retirement accounts to help bridge the gap in affordability as rates continue to rise.
When I consider what happened when rates reached the record levels of decades past, I am reminded of homes I handled in the ‘Nineties that were sold off at a profit by groups of friends who had gone in together as co-investing housemates, using a TIC agreement to define their shares in the home along with other details like responsibilities for maintenance plus areas reserved for each partner’s exclusive use.
I would speculate that if rates get much higher, we may see a return to those types of solutions by entry level homebuyers who are comfortable with co-housing as a means of getting into the market. What got me thinking of this was a condo I just listed in Capitola which is particularly well-suited for such an arrangement with twin primary bedrooms upstairs, each with an en-suite bath lounge, and a half bath downstairs for visiting company.
And of course, much of this goes to show that when someone really wants to get into a home of their own, quite often they find a way. Sometimes it just takes a little more lateral thinking.