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Buyers Losing Purchase Power

If you’re considering selling your home in South Carolina, it’s important to keep abreast of how the current real estate market is trending. Jeff Cook Real Estate pays close attention to markers that reveal the health of our local real estate market, and one of the most significant involves Buyer Purchase Power

According to Investopedia, Buyer Purchase Power is basically how much consumers can buy with a given amount of money. Consumers lose purchasing power when prices increase. They gain purchasing power when prices decrease. 

When dealing with buying and selling real estate, each state has a Buyer Purchase Power Index (BPPI) that is calculated using the state’s average income and the mortgage interest rate. This number fluctuates because average income generally changes very slowly, while interest rates change constantly. 

How Does Buyer Purchasing Power Affect Home Prices? 

Buyer purchasing power is a major driver for home prices. As purchasing power increases, buyers are able to pay more for a home, and home prices rise. When buyer purchase power falls, home prices will generally decrease. The money is simply not available in many buyer’s budgets to pay top dollar for a home; they have to settle for less. In order to sell a home, a homeowner may have to lower their asking price. 

The overall BPPI increased throughout 2019-2020 and into 2021 because mortgage rates declined. This raised buyer purchasing power, or a buyer’s ability to get more for their money. Accordingly, home sales increased and sellers enjoyed the freedom to demand higher prices. Indeed, some price wars were witnessed in the South Carolina housing market as prospective buyers attempted to outbid competitors for desired properties. 

Why Are Buyers Currently Losing Purchase Power? 

Many factors impact buyer purchase power. The Fed has indicated that the benchmark interest rate will remain near zero through at least 2023, but some mortgage interest rates are climbing. There is trouble with sustaining a real jobs recovery. As of early 2022, the federal foreclosure suspension and the vast majority of state foreclosure moratoriums have expired. All these factors have a negative impact on purchase power. 

In the current real estate market, although it’s relatively easy to get your home under contract, not just any agent can get your home closed. Low inventory, high demand, and rising interest rates have made it challenging and stressful for sellers to sell their existing home and purchase another. An average of two out of every three homes make it to the closing table. 

This is extremely important if you are a homeowner looking to sell your home. For every percent the interest rates rise, buyers lose 10 percent of their purchasing power. This means buyers who could have afforded a $300,000 home can now only afford the $270,000 home. But add this truth to the mix: low housing inventory and rising home prices make the $300,000 home worth $350,000. 

In short, the buyer has now lost 30%-35% of their buying power due to the shifting market and interest rates.

Is Now a Good Time to Sell My Home? 

Now is not only a good time to sell your home in South Carolina, but to be sure you close the deal. Jeff Cook Real Estate has the team with professional skills and knowledge to help buyers and sellers get the deals they need for their homes and property. Contact us today and ask to speak with an agent about listing and selling your home in South Carolina. 

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