Interest Rate Impact on the South Texas Housing Market – and Why Home Staging Will Help

The real estate market is transitioning from crazy hot to… slowing? Yes! There is growing evidence that the real estate market is beginning to cool in San Antonio and Austin.

The current interest rate, while not historically high, has increased at a pace that has sent shock waves across the real estate industry. In September 2021, a 3% interest rate on a 30-year fixed mortgage was possible for buyers with good credit. The current rate is almost double that.

Read on to learn what higher mortgage interest rates mean for South Texas REALTORS®, homebuyers, and sellers. 

Homeownership is not affordable for many local newcomers.

We have an affordability problem in the housing market. It has been a growing concern for years, but as mortgage rates increase, inflation continues, the job market cools, and the stock market dips, the crazy-high housing prices of the past two years are simply unsustainable.

Although people are moving to Austin and San Antonio in droves, renting is more affordable than buying a house. The monthly costs of starter homes in Austin outpace rents by 76.1%. So, for those new to the area, it makes sense to wait out the high prices in a more affordable apartment.

The rent vs. buy affordability problem is getting worse with rising mortgage rates.

Here is an example of how higher rates impact affordability:

A 30-year mortgage on a $500k house, with 20% down and a 3% interest rate (available for borrowers with good credit in 2021), would result in a monthly payment of $1,686, according to Bankrate.com.

That same house will cost the same borrower $2,398/month at a 6% interest rate. $700/month is a significant increase to most buyers and completely changes the affordability of the home. Over the life of that 30-year loan, the difference in a 3% interest rate increase means an increase of $256,243.

Austin home sales prices are falling.

Although list prices are still high, price reductions are increasing rapidly. According to Realtor.com, Austin had the greatest increase in price reductions in the nation during both May (+14.7%) and June (24.7%). 32.4% of Austin homes listed in June 2022 got a price cut. The San Antonio housing market is sure to follow Austin in the coming months with more and more price cuts and higher days on market.

The real estate market has a big “recency bias.” If a seller knows their next-door neighbor sold their home for $800k in January 2022, they will expect to sell their own home for $800k. The problem is that an $800k mortgage will cost the buyer substantially more now than it did in January. So, while the initial price might be set high due to the seller’s expectations, the home is much more likely to sit on the market longer and incur price cuts.

It is important for real estate agents to set appropriate expectations for their sellers, helping to set the initial sales price in accordance with the current market demand. But, for sellers who still want top dollar for what is likely their biggest financial investment, professional home staging can help them achieve their sales goals. No matter the market, staging sells homes for an average of 20% more than un-staged homes.

Demand for homes is cooling.

Home buyers are getting a bit wary of the current high prices. They are seeing their net worth fall due to a stock market correction, and their income is not going as far due to higher prices at the gas pump and grocery stores.

When people see their assets decreasing and their purchasing power falling, it impacts the decisions they make on purchases like home buying. This is all happening just as buyers need to qualify for higher monthly payments due to the mortgage interest rate hikes.

Days on market are increasing rapidly in Austin.

At the same time that demand is cooling, inventory is increasing. Austin led the nation in June for largest year-over-year increase (144.5%) in inventory and the biggest year-over-year increase in days on market. In June 2022, homes in Austin sat on the market 6 days longer than they did in June 2021.

We are likely to see an increase in DOM in San Antonio even before we see large scale drops in housing prices. If buyers anticipate a real estate market correction and lower housing prices coming, there will be less of an incentive to purchase now.

^{Photo Credit: BY Design Home Staging}

The job of a real estate agent is getting harder.

The hot real estate market and soaring home prices of the last 2 years promised huge commissions for agents. It seemed like a golden opportunity, so more than 156,000 people got their real estate license in 2021 and 2020 – nearly 60% more than in pre-pandemic 2018 and 2019.

With buyers overlooking major inspection issues (or waiving inspections altogether), holding deals together was easier than ever, and there was always a backup offer if a contract did fall through.

Higher average days on market means agents will need to work more hours for every home they sell–and lower sales prices mean lower commissions. Working harder for less money is not what most agents had in mind when they got their licenses.

Home staging sells homes 88% faster and for 20% more.

Problem: Falling prices. That seller with the neighbor who sold their home for $800k is now going to need to do more to his house to make it go for the price he wants.

Solution: Staging. It will increase the perceived value of the home and raise the price to be more in line with the seller’s goals.

Problem: Increased days on market. Homes will not sell as quickly as they have been in recent years.

Solution: Staging. Staging makes an emotional connection for the buyer that sells the home 88% faster than un-staged homes. When buyers are in love with a property, they will jump on the opportunity.

Problem: Agents will need to differentiate themselves in the market and show clients how much value they can bring to a deal.

Solution: Staging. Agents who stage can get their clients an average of 20% more for their listings and sell them 88% faster.

More than ever, agents and sellers need every deal to make it all the way to the closing table. And what keeps deals together? Buyers who fell in love with the property because it was beautifully staged.

BY Design Home Staging is a locally owned and operated staging and design firm that has served San Antonio, Austin and the surrounding Hill Country since 2007. BY Design was named 2022 SABOR Affiliate of the Year and 2022 Top 10 Stager of the Year in the Vacant, Occupied, and Luxury categories by the Real Estate Staging Association (RESA) and owners Debbie Boggs and Julie Young were also named to the list of Most Influential People in the Staging Industry in 2022.