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Mortgages

Home sellers are lowering prices, but watch for these 2 signs to fall in your favor before you buy

As the housing market cools down, these two indicators can help you find a good deal.

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After many months of soaring home prices, the real estate market finally seems to be cooling down. According to a recent report by Redfin, about 1 in 5 home sellers in the U.S. lowered their asking prices in May, the highest number to do so since October 2019.

However, rising interest rates have not made it easy for homebuyers, as they've increased substantially since early 2022. If you're in the market to buy a home this summer, you may be able to lock in a slightly lower price as well as a lower interest rate by watching two key factors keenly.

Below, Select details what two things homebuyers need to be monitoring closely, plus what you can do in the meantime to prepare yourself financially for scoring a new home.

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2 factors to keep in mind before buying a home

It seems the days of making dozens of offers on a home may be in the past. As the Federal Reserve has raised interest rates and the cost of buying a home is now 50% more expensive than it was a year ago, homebuyers have reeled back, essentially changing the entire real estate landscape.

If you're avidly searching for your next home, keep these two factors in mind as you do your best to time your home purchase perfectly.

1. Inventory numbers are on the rise

As mortgage rates have spiked, the consumer-driven frenzy to buy a home has slowed significantly, a trend that is directly reflected in the number of active home listings.

According to a recent report by the Federal Reserve Bank of St. Louis, there were 376,018 homes listed in February 2022. In May 2022, the number jumped to 516,362, showing an increase of 37%. Now, it seems homes are sitting on the market longer and fewer offers are being made on each home.

"Increasing inventory suggests that rising rates and market conditions have begun to soften demand, meaning buyers may have a bit more leverage," says Robert Heck, VP of mortgage at Morty, an online mortgage marketplace.

Coby Herzog, a real estate agent in San Diego, agrees. "Listing agents are starting to respond and be helpful again now that they aren't receiving 100+ messages a day," says Herzog, who is also noticing that offers are more often being recognized and responded to lately, rather than getting rejected.

As you search for a new home within a specific area, keep an eye on the total number of homes that are for sale there — simply use the resources that are available from Realtor.com's data section by searching for homes based on the area you wish to buy one in.

2. Interest rates tick upward, but will remain volatile

Since the beginning of 2022, interest rates for 30-year mortgages have been on a steep upswing. On Jan. 6, the average interest rate for a 30-year mortgage was 3.22%, while in recent days, rates hit 5.43%. That means, assuming there's a 20% down payment, a monthly payment for a $350,000 house just went from $1,213 to $1,577 (less taxes and insurance) in the span of approximately 150 days.

The combination of higher rates and record-high home prices has unfortunately eliminated some potential buyers from the market. But for impatient homebuyers worried about further rate hikes, Heck says, "current market indicators are not projecting interest rate levels to send mortgage benchmarks above 7%," adding that while interest rates are higher than they once were, they are still historically low.

As for what the future holds, the Fed is on a clear path to continue raising interest rates through the rest of the year to help overcome record-high inflation. Heck urges consumers to stay vigilant since it's equally possible for rates to decrease or increase rapidly based on macro factors and economic data, along with further action by the Fed.

Because of the turbulent factors, Heck says consumers are looking into mortgage products such as to-be-determined (TBD) rate locks and float-down options. According to Heck, this gives homebuyers the ability to "take advantage of lower rates if they lock their mortgage and rates decrease enough prior to their closing."

Be sure to check current interest rates with any of Select's top-rated mortgage lenders, which cater to different homebuyer needs. For example, Rocket Mortgage services those with lower credit scores, while Chase Bank offers flexible down payment options and PNC Bank offers flexible loan options.

Rocket Mortgage

  • Annual Percentage Rate (APR)

    Apply online for personalized rates

  • Types of loans

    Conventional loans, FHA loans, VA loans and Jumbo loans

  • Terms

    8 – 29 years, including 15-year and 30-year terms

  • Credit needed

    Typically requires a 620 credit score but will consider applicants with a 580 credit score as long as other eligibility criteria are met

  • Minimum down payment

    3.5% if moving forward with an FHA loan

Already have a mortgage through Rocket Mortgage or looking to start one? Check out the Rocket Visa Signature Card to learn how you can earn rewards

Chase Bank

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans

    Conventional loans, FHA loans, VA loans, DreaMaker℠ loans and Jumbo loans

  • Terms

    10 – 30 years

  • Credit needed

    620

  • Minimum down payment

    3% if moving forward with a DreaMaker℠ loan

  • Terms apply.

  • Offers first-time homebuyer assistance?

    Yes — click here for details

PNC Bank

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans

    Conventional loans, FHA loans, VA loans, USDA loans, jumbo loans, HELOCs, Community Loan and Medical Professional Loan

  • Terms

    10 – 30 years

  • Credit needed

    620

  • Minimum down payment

    0% if moving forward with a USDA loan

Terms apply.

Bottom line

Inventory and interest rates play a large part in the housing market, but when you're ready to buy a home, keep this in mind:

"Timing the market is extremely hard, if not impossible," says Heck. "The bottom line is that everyone should look at their own situation, the time horizon they expect to live in and own a home and what their long-term financial goals are in order to make a decision about buying."

Before you begin making offers on homes, remember to do your due diligence regarding your personal finances — raise your credit score as high as you can, ensure your monthly budget is in check, bolster your emergency fund in a high-yield savings account with the *American Express® High Yield Savings Account or SoFi, plus don't neglect stashing away funds for your retirement.

Catch up on Select's in-depth coverage of personal financetech and toolswellness and more, and follow us on FacebookInstagram and Twitter to stay up to date.

*American Express National Bank is a Member FDIC

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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