I’m a Realtor. Here's How Homebuyers Can Turn Challenges Into Opportunities in 2024

The real estate market has been a rollercoaster for the last five years. Both prices and interest rates have been up and down, and many prospective homebuyers feel their heads spinning from the rapid changes. Many find themselves asking questions like:

“Do I buy now or wait?”

“If I buy now, will I regret it if rates go down?”

“Is this the right market to buy a home?”

With interest rate fluctuations, an election coming up, and new requirements for how agents do business, the current real estate market is hectic and evolving.

Now more than ever, the process of purchasing a home can be both exciting and daunting. But buyers can actually leverage the many challenges to their advantage, turning them into opportunities. Here's how they are doing just that.

Challenges For Today’s Homebuyer

If you could boil down the biggest challenge for homebuyers into one word, it would probably be “affordability.” High home prices and mortgage rates mean a larger upfront and monthly outlay at a time when inflation has taken a painful bite out of the average person’s paycheck. Unfortunately, prices and rates aren’t the only costs that have risen.

High Home Prices

One of the most pressing challenges facing homebuyers is high property prices. Over the past few years, housing prices have seen a considerable surge, driven by low inventory, increased demand, and economic conditions.

Typically when interest rates go up, home prices go down. But, while there was a small correction in pricing in the latter half of 2022 (some markets saw prices drop 10% - 20%), prices remain historically high. Even as some markets show signs of stabilization, prices remain elevated compared to historical norms. For many buyers, especially first-time purchasers, this means stretching their budgets further and possibly compromising on certain aspects of their desired home.

High Interest Rates

In addition to high property prices, mortgage rates have also seen an upward trend. The Federal Reserve's actions to curb inflation have led to increased borrowing costs, directly impacting the affordability of home loans. Higher interest rates mean higher monthly mortgage payments, which can significantly affect a buyer's overall purchasing power. This financial strain can be a substantial hurdle for those looking to enter the housing market or move to a new home.

Luckily, mortgage rates have fallen recently to four-month lows as of this writing, says Freddie Mac.

It’s important to talk to a mortgage lender to find out what you qualify for so you know your purchasing power. You might find out you need a smaller down payment than you thought, or that your monthly payment isn’t as high as you expected, even with increased rates.

Stricter Insurance Guidelines and Higher Costs

Insurance is another factor contributing to challenges in the 2024 market. Insurance providers face increased risk from natural disasters, climate change, and economic uncertainties. They have tightened their guidelines and raised premiums. Buyers now face more stringent requirements for obtaining homeowner's insurance, coupled with higher costs.

For example, a roof in good shape might be deemed too old by some insurance companies, regardless of the condition. Then a buyer would either have to budget to immediately replace the roof after closing, ask the seller to replace it (and therefore increase the cost of the home), or pay for specialized insurance that would allow the old roof to stay but at a much higher insurance premium. This added financial burden can further complicate the decision-making process and affordability of purchasing a home.

In some states, insurance is becoming prohibitively expensive. A recent study showed Floridians pay about $3,300 more per year than the national average, reports the Pensacola News Journal. And insurance heavyweights like Allstate are have pulled out of California altogether.

Finding insurance isn’t making the already tough homebuying market any easier.

Opportunities

With any challenge comes an opportunity. This fact is playing out in the current housing market in interesting ways.

Negotiation Leverage

One of the most significant advantages is the increased ability to negotiate. With the market cooling from its previous frenzied pace, sellers are often more willing to accept offers below the asking price or agree to concessions, such as covering closing costs or making repairs. This shift gives buyers more leverage to secure a favorable deal, potentially offsetting some financial pressures from high prices and interest rates.

More sellers are willing to replace the flooring at their expense, pay for a buyer’s home warranty, reduce the sales price, and make other contributions, making homeownership more financially feasible.

Increased Inventory

Another positive aspect of the current market is the increase in available inventory. At the time of this writing, inventory across the U.S. is at its highest level since the pandemic. During the housing boom peak, low inventory levels led to fierce buyer competition, driving prices up and limiting options. Buyers often had to compromise substantially. For example, buying a home with three bedrooms when they needed four, or giving up their hope of having a beautiful pool.

However, as the market adjusts, more homes are becoming available, giving buyers a broader selection. This expanded inventory means buyers can take their time exploring different properties. They can make more informed decisions without the pressure of immediate competition. While homes in good condition with desirable features and in a preferred area are still going under contract relatively quickly, there is more chance that another similar one will pop up soon.

More Time for Due Diligence and to Make a Decision

Unlike the rapid pace of previous years, where homes would receive multiple offers within the first day, today's market allows for a more slow-paced approach. While previously buyers had to decide whether to purchase a home within a matter of hours, now they can take a day or two to decide if it’s right for them. Before submitting an offer, buyers can do their due diligence on the neighborhood, potentially have a pre-contract inspection, and thoroughly review comparable sales to make sure they are comfortable with the contract price.

It’s been reported that some people who bought during the frenzied market of 2020 - 2022 regret their decision, and that can be avoided by having time to consider all the information before submitting an offer. Reduced urgency can lead to better outcomes, ensuring buyers find a home that meets their needs and preferences.

Future Rate Benefits

Starting the homebuying process now can also position buyers advantageously if interest rates decline in the future. Those who secure a home at current rates may have the opportunity to refinance at a lower rate later, potentially reducing their monthly payments and overall loan costs. This strategic move can provide a financial edge over other buyers who wait, as they may face renewed competition and higher prices when rates eventually drop.

You should always make sure you are comfortable with your monthly payment at the current interest rate. You might be stuck with it for a while. Still, it’s nice to know you can potentially refinance and save some money if rates drop. Refinancing can also help you convert your FHA loan to conventional or drop mortgage insurance.

Changing Laws Provide More Options for Buyers

One additional real estate matter for buyers to consider is how the new real estate commission law taking effect on August 17, 2024 will impact their home buying experience. A significant change in the real estate landscape is due to the Department of Justice (DOJ) lawsuit against the National Association of Realtors (NAR). This ruling changes how buyers' agents are compensated, potentially requiring buyers to get more comfortable with representing themselves or directly paying their Realtor for their services.

Without the automatic commission split traditionally paid by sellers, buyers may choose to navigate the homebuying process independently to avoid the cost of paying their Realtor. While this can be daunting, it also empowers buyers to take full control of their transaction. However, it requires a thorough understanding of the homebuying process and good negotiation skills. Websites like Homa, designed to teach homebuyers how to navigate the buying process by themselves, can be a great tool.

Alternatively, buyers who prefer professional representation should prepare to pay their agent directly, just in case the seller is not offering compensation. While this adds to the overall cost of buying a home, the benefits of having an experienced advocate can outweigh the expense, especially in complex transactions or competitive markets. Investigating cost-effective alternatives, like flat fee brokers, before you start your home search will help you understand your options and prepare for your budget.

Finally, be prepared for a transition period in the real estate market as sellers, buyers, and agents adjust to these changes. Interactions with listing agents may feel rocky for both sellers and buyers as everyone learns how to navigate the dramatic shift in the industry. Throughout the process, buyers should stay informed and flexible, adapting their strategies to leverage the best opportunities while mitigating potential challenges.

Is It Time To Buy?

Today’s real estate market is unlike any we’ve seen before. While that can create challenges, it also presents opportunities for informed and prepared homebuyers.

If buying a home in 2024 is on your to-do list, this current market may help you achieve that goal.