LEXINGTON, Ky. (LEX 18) — When you drive around Lexington, the number of homes you’ll see listed for sale is still very low. In that regard, not much has changed with the housing market we saw during the pandemic, as inventory remains fairly low.
What has changed is the number of buyers being somewhat reduced by an increase in the federal interest rate. The Federal Reserve hiked the rate to offset the rate of inflation, and experts think that’ll actually help the housing market in a positive way.
“It’s unfortunate for the buyers, but this is something we needed to have to pull us back into a market re-set, not a market crash,” said Greg Buchanan, owner of ERA Select Real Estate of Lexington.
Mr. Buchanan said home values are likely to hold steady. It’s one of many reasons Buchanan, and Lexington realtor, Devon Ramage won’t dissuade their clients from buying, assuming a rental payment and mortgage payment are in similar ballparks.
“That’s a conversation we have,” he said from his office on Monday. “Because at least if you buy, it might be something less, but you’re building equity. You’re building wealth.”
Buying “less” is what Kim Covington is trying to avoid. She’s been looking to trade in her rental home for home ownership, but the rate hike has essentially chased her from the market. She knows what she would’ve paid for a home barely one month ago as opposed to what she’d pay for that same home now.
“I don’t want to do it now because we may not like the home, or we’re just settling for this because this is what, as of today in this interest rate world, we can afford right now,” she said.
Mr. Ramage broke that dilemma down into simple terms.
“$250,000 (for a home purchase) at 3% is about $1,230-$1,235 (per month). 4 ½% is $1,400 a month, and 6% is $1,600 a month,” he explained by using a rough estimate payment scale calculating the not-so-old interest rate versus today’s rate, which is hovering right around 6 percent.
Ramage said those price differences are not insignificant, so he tells his clients that he understands if they want to postpone their search for a while. But he does caution that the rate could get worse before it gets better. Buchanan also tells his clients that buying is the best investment as long as they can manage the payments until a refinance window opens.
“I know it’s not the rate you like, but the rates will come back down at some point in time, and you can refinance in 1 or 2 years,” Buchanan said.
Mrs. Covington understands that side of it, but it’s still been a frustrating few weeks.
“Three months ago we were looking at this, now it’s like, what do you do?”
For now, she and her family decided to postpone their search.