As housing construction cools, some sellers in “zoom cities” are helping buyers with mortgage costs
As rising mortgage rates hurt home sales, many “zoom cities” — areas that have been booming during the pandemic thanks to an influx of remote workers — are seeing their housing markets cool. This leads to sellers getting creative and giving buyers a little leverage when looking for a home.
A new strategy that’s on the rise: the mortgage “buydown,” which can help buyers get a slightly lower mortgage rate than the 6% or 7% rates on most home loans today.
Taylor Marr, deputy chief economist at Redfin, explained how this works on CBS News Mornings. In a “2-for-1” buyout, a common arrangement, a buyer can secure a lower interest rate for the first two years of the loan by depositing additional funds.
“If you’re buying a $500,000 house, you could invest an extra $10,000 or $20,000 to temporarily pay off your mortgage interest,” he said. “If you get a 6% mortgage rate, you actually get 4% the first year. And then it goes to 5%, then to 6%,” he said.
“It can be a great way to afford a home if your income is increasing rapidly. But you need to invest more money up front,” Marr added.
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Buybacks are gaining popularity in some areas where home sales are slowing, but they’re just one of several concessions sellers can make to get a deal across the line. Other sweeteners might include raising some money for repairs or offering to pay the buyer’s closing costs, Marr said.
In fact, sellers offered a record share of concessions in the last three months of 2022, according to Redfin data. According to a recent report, about 42% of sales by the company’s agents included a concession. Some sellers are also having to cut prices entirely, with Marr noting that about half of recent home sales have been completed below asking price.
Concessions are most common in the west, Redfin found. Almost three-fourths of San Diego’s home sales were franchised last quarter, followed by Phoenix, Portland, Las Vegas and Denver.
“The housing madness created by the pandemic was concentrated in a lot of these pandemic boomtowns, which were mostly in the west,” Marr said. “These are the same markets that cooled down quickly back then [interest] prices rose. Increasingly, they have to come up with concessions to get buyers to buy a home.”
Mortgage rates are nearly double what they were in early 2022 when the Federal Reserve hiked interest rates in its attempt to tame inflation. The ramp-up has added hundreds of dollars to potential homebuyers’ typical monthly payment and pushed home sales to their lowest level in eight years.