As rising mortgage rates dent housing sales, many “Zoom towns” — areas that boomed thanks to an influx of remote workers — are seeing their housing markets cool. That’s leading sellers to get creative and giving buyers a bit of leverage in finding a home.
One new strategy that’s making inroads: The mortgage “buydown,” which can help buyers line up a slightly lower mortgage rate than the 6% or 7% interest on on most home loans today.
Taylor Marr, deputy chief economist at Redfin, explained how this works on CBS News Mornings. In a “2-to-1” buydown, a common arrangement, a buyer can secure a lower rate for the first two years of the loan by putting down additional funds.
“If you’re buying a $500,000 home, you might put an extra $10,000 or $20,000 to temporarily pay down your mortgage rate,” he said. “If you’re getting a 6% mortgage rate, for the first year you actually get 4%. And then it goes up to 5%, then 6%,” he said.
“It can be a great way to afford a home if your income is rising rapidly. But you do have to put more money upfront,” Marr added.
Buydowns are becoming more popular in some areas where home sales are slowing, but they’re just one of several concessions sellers can make to nudge a deal over the line. Other sweeteners could include kicking in some money toward 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. Some 42% of sales by the firm’s agents included a concession, according to a recently published report. Some sellers are also having to drop prices outright, with Marr noting that about half of recent home sales closed below the asking price.
Concessions are most common in the West, Redfin found. Nearly three-quarters of home sales in San Diego had a concession last quarter, followed by Phoenix, Portland, Las Vegas and Denver.
“The pandemic-fueled housing market frenzy was concentrated in a lot of these pandemic boomtowns that were mostly out west,” Marr said. “These are the same markets that have cooled rapidly when [interest] rates rose. They’re increasingly having to come up with concessions to get buyers to be able to buy a home.”
Mortgage rates are nearly double where they where in early 2022 as the Federal Reserve pushes up interest rates in its bid to tame inflation. The run-up has added hundreds of dollars to the typical monthly payment of would-be homebuyers and driven home sales to their lowest level in eight years.