Mortgage Rates in the 5’s: Will Spring Inventory Finally Unlock?

We’ve anticipated this moment for years. The affordability metrics show that a lot of people can qualify to purchase a home when mortgage rates are in the 5’s. And now, for the first time in three years – we are finally there. And while the Spring is always a special time for real estate markets across the country, I think we are gearing up for something fairy tale worthy this year. The reason I’m feeling so mystical magic goes beyond interest rates so stay for the whole story time today. 

Historical data shows that sellers will net the most proceeds from the sale of their home if they sell in May or June. Homes listed in these months not only sell faster but receive more offers and net their sellers 2-10% more than the annual average. So, realtors advising their clients to prepare their homes for the Spring buying season are basing that advice on more than just the curb appeal and landscaping turning green.

Spring is favorable for buyers too. Families want to move during better, predictable weather. They also want to be settled before the new school year starts. Corporate employees usually receive relocation assignments this time of year. Many Americans are receiving their tax refund which is a nice boost to their down payment fund. Although I do think it is worth a conversation with your lender on whether you should increase your down payment or pay off a high monthly payment debt with your refund. That could actually have a bigger impact on your buying power, but I digress… 

Entrepreneur’s Moment of Truth 

This time of year – tax season - is also a magical time in the mortgage space, regardless of what interest rates are doing. Roughly 1 in 10 Americans is self-employed. Qualifying for a mortgage is sometimes a paradoxical experience for these buyers. The business owners and independent contractors file their taxes with the goal being to have the lowest liability to the IRS. Meaning, to pay the least amount of taxes. By the way, the tax code – that contract each of us signs with the US government but have very little understanding of – was written for this purpose, for the benefit of entrepreneurs and real estate investors. The government literally designed it full of loopholes for these folks to avoid taxes. 

No joke. 

America’s infrastructure, the budget (or lack thereof) is funded on the backs of wage earners. But I find myself again going off on a tangent so let’s get back on track. This time of year, is magical because you haven’t yet filed your tax return as a business owner. If you can provide a draft of your return to your lender – you can save yourself a lot of heartache. Your lender can tell you what your buying power would be if the return was filed as is. This might influence how aggressive you go with your deductions, right? Or you could file your return without having your lender review and roll the dice for a full year. 

That is right. 

Once your taxes are filed as a business owner or independent contractor – your buying power for a traditional mortgage is sealed for a full year. Until you file taxes the following April (or October if you’re one of those). 

This year’s special sauce: Interest Rates 

I made a video this week that popped off a bit on Instagram. My guess is that people – both inside the industry and outside – are getting so excited about this Spring Buying Season because of interest rates. 

No shit Sherlock. 

I know what you are thinking. Well yes, obviously buyers are hyped up because they qualify for more house. Or the same amount of house with a much better monthly payment. This will create a flurry of activity and that fuels the real estate market. I think we are all clear on that. Here’s what I’m curious to find out. We’ve assumed that a lot of sellers stayed put longer than they would have because they were rate trapped. They wanted to downsize or move up or even just get a change of scenery, but they just didn’t because their interest rate would double or even triple. 

These lower interest rates could unlock the inventory. Sellers care about rates because what is a seller? A buyer on the other side. Most of the time anyway. And if they are not buying, or not borrowing for their next purchase, they still like lower interest rates because they know that will create more buyer demand for their home. 

So, let’s see, will we see a few more listings this Spring Buying Season than we would have if interest rates were still 6-7%? Only a little longer and time will tell. By the way, I’m going to go deeper on all the data we should be paying attention to form our strategies for this Spring Buying Season Property Pursuits next week, so you should tune in.