Cash buyers have the upper hand as mortgage rates rise

Although there is still a shortage of inventory, cash buyers can use this time to take advantage of a greater selection of homes than buyers who take out a loan.

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For much of the pandemic, mortgage rates have hovered at historic lows. These historically low interest rates have been a major contributory factor to the perfect storm that has hit the housing market over the past two years, leaving Americans with a housing shortage and low inventory that many experts believe will not yet be balanced in 2022.

Now that rates are rising for the foreseeable future, buyers are going to need new support to stay on top of tight deal negotiations. One thing that seems like a clear, recession-proof advantage for competitive low-inventory markets? Cash offers.

Rising rates mean less affordability

But with inflation on the rise, homebuyers are seeing those very attractive mortgage rates quickly disappear, with rates are now over 6% and market experts predict further rate hikes in the coming months. The higher the interest rate, the less purchasing power the buyer has because it becomes much more expensive to borrow silver.

In other words, with higher interest rates, you get less home for your borrowed money, which forces buyers who need to finance their purchase to consider cheaper homes than they were considering when. mortgage rates were lower. It’s a tough nut for buyers to swallow, and it puts them in a daunting situation.

The bidding wars will continue

To compound the setback of rising interest rates for buyers, buyers continue to face bidding wars when a new listing hits the market. Often these bidding wars push the selling price above the asking price. This reality forces buyers to explore homes listed below their maximum budget, as they can reasonably expect to have to pay above demand up to their budget limits to secure the home.

And, while cash buyers aren’t dependent on interest rates as a factor affecting how much they can spend on a home, they need to access more cash and stretch their budget to beat the competition when these price wars hit. auctions occur.

Higher mortgage rates could end up playing to your advantage cash buyers because rising rates stifle the purchasing power of borrowers and can eliminate much competition.

All other things being equal, a the seller is much more likely to accept a cash offer on a funded offer to be free of the contingency that accompanies an offer conditional on a mortgage.

Silver could open more inventory

Cash buyers should take advantage of this time to enjoy a wider choice of homes than buyers who take out a loan. There is still undoubtedly a shortage of inventory, but there is now more inventory that cash buyers can afford than borrowers using financing.

Bonnie Heatzig, The Luxury Real Estate Authority, is the executive director of luxury sales at Douglas Elliman in Florida. Follow her on Facebook and instagram.

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