Thursday, September 28 2023 10:33

Fall Real Estate Market in the Brandywine Valley

Written by Laurel Anderson

Still tight, but creative thinking can help

Everyone still loves talking real estate. Even in a tight market. And yes, it’s true 2023 has seen a significant slowdown in the housing market, even in our special corner of the country. While we’ve learned from past conversations with local agents the real estate market is local — even hyper-local — there’s no escaping certain overarching factors.

For the fall market — which started Labor Day and runs until sellers tire of buyers walking through their holiday decorations — we checked in with local experts to learn more.

What’s Stayed the Same

Top of mind for most are mortgage interest rates, which continued to increase and linger around 7.5% for a 30-year fixed rate at press time. Many buyers remain fixated on the historic low rates in the 3% range, immobilizing them while wishing, hoping and dreaming of big rate drops. Yet even if lower rates reappear, they’d draw out more buyers and fuel the frenzy and competition of years past. So not necessarily a dream come true.

Inventory of homes on the market is also still tight, continuing the seller’s market. And with limited inventory, sale prices keep rising. It’s those high home prices that make the 7.5% mortgage rates of today more impactful on a family budget than when rates were equally high or higher years ago, yet home prices were markedly lower.

Kit Anstey, of the Kit Anstey Real Estate Team, said, “Many who try to wave away the consequences of higher rates overlook the significant increase in home prices.” For example, average home prices in the West Chester Area School District have increased dramatically, from $480,000 in 2021, to $636,000 in 2022, to $708,000 in 2023, said Anstey.

Yet other factors that remain constant are the ongoing needs of some buyers for a new home — job moves, family needs, lifestyle changes — along with certain sellers being ready to give up their cherished 3% mortgage and get on with their lives. Stephen Gross, of the Holly Gross Group, said homeowners with substantial equity in their longtime homes are selling and paying cash for a smaller retirement home, thus avoiding the mortgage market, at least for now.

And agents agree it’s a truth universally acknowledged that a well-maintained property in a good location at a fair price will still get multiple offers. Missy Schwartz, of Berkshire Hathaway, has a mantra: “Price, condition, location are still the factors to focus on.” And if the price is set competitively, there will likely be multiple bids — many over asking price and some with escalation clauses (agreeing to pay a set amount above other bids, based on an offer strategy).

For high-end properties, condition is especially important among the three key factors, said Karen Nader of Monument Sotheby’s. “Turnkey condition is highly valuable in luxury properties. But even in a seller’s market, the right price and good location continue to be important factors.”

What Has Changed

In fall 2023, agents are seeing what Nader described as “weary spring bidders replaced with eager buyers and investors who have changed some of their earlier decisions.” The market is meeting these buyers with new mortgage products and other strategies.
For example, early 2023 saw more adjustable-rate mortgages. But now adjustable rates are too close to the prevailing rate (often only about .25% less), making this option less attractive.

Both Deb Sparre, of RE/MAX, and Gary Scheivert, of Gary Scheivert & Associates, mentioned a new mortgage product: the 3-2-1 buydown mortgage, where (simplifying greatly) the interest rate paid is 3% below a set rate in year one, 2% below in year two, 1% below in year three, and then increases to a predetermined rate in year four and through the remaining term, when refinancing may be an option. This mortgage, where sellers pay the buydown costs, can be attractive to homeowners expecting significant increases to income (early in careers) or decreases to expense (daycare costs end with public school), said Sparre.

“Buyers are paying points to make their mortgage payments more affordable,” said Antsey, noting another way to help buyers handle higher rates. The cash to pay points may be offset by a seller’s assist or from a builder, but is generally borne by the buyer.

In addition, there’s an increased use of quick sales with deadlines. This typically happens when a seller’s agent gets an offer on the first day or days of an open house, with lots of interest. An email is sent to interested buyers and agents requesting all offers be submitted soon — perhaps 48 hours. The rationale is that serious buyers have been looking and are knowledgeable and can make quick decisions. The bidding war generates interest, pressure and, it’s hoped, a higher sales price.

Another change: fewer agents are selling real estate. Over 60,000 agents have left the profession nationally in the first half of 2023, according to the National Association of Realtors. Given the challenges, is it any wonder?

Other Strategies

While many agents observe more rationality in the market after the frothy early 2020s — like a return of mortgage, appraisal and inspection contingencies — others see these conditions as highly negotiable, with every deal being customizable. Generally, mortgage contingencies are less important when buyers come preapproved to the deal (waiving the mortgage contingency still allows buyers to get a mortgage).

For appraisals, buyers are agreeing to absorb additional costs between the appraised value and mortgage secured. And with inspection contingencies, some agents suggest being highly selective, like getting that septic inspection! Still, the cleanest offer wins, said Schwartz.

With pressure to build more homes to add to the inventory, some builders offer mortgage rates slightly lower than market, like 6.5%. Another strategy to drive sales of inventory is to offer credits to cover buyers’ closing costs. The home sales price stays high and covered by the mortgage, but the buyer gets the benefit of paying lower closing costs out of pocket, said Gross.

In addition to varying contingencies, other advantages and accommodations are being offered, including:

  • Buyers placing earnest money in escrow within 24 hours (rather than five days, as in the standard sales contract) to prevent lost sales due to buyer’s remorse.
  • Buyers paying a nonrefundable deposit, say $50,000, to demonstrate commitment to the sale.
  • Buyers paying the seller’s 1% transfer tax, which may not sound significant until you do the math for a $1 million sale.
  • Sellers staying in the home for an extended period, rent-free, especially important to sellers who are downsizing or need extra time.
  • Sellers in historically less popular neighborhoods seeing more interest as buyers increase their search radius.

Yes, it is a seller’s market. Even when it comes to buying land, the inventory is tight, said Mark Willcox of Country Properties. A strategy he suggests for buyers is to determine if the property is currently under conservation easement. Working with an experienced agent and one of the many local land conservancies, buyers may discover a range of financial benefits (income tax, some real estate tax advantages) in addition to emotional benefits of protecting the land.

Words of Experience

While the current real estate market may seem like complete chaos or the Wild West to some, experienced agents counsel taking a deep breath, being prepared and not trying to time the market. “It is what it is, but benefits of ownership outweigh the costs,” said Gross.

“Buyers need to be prepared for an emotional roller coaster,” said Sparre. “Some buyers have had to make eight offers before finding their home.” But those buyers did find their new home, so there are still happy endings.