Impact of Mortgage Interest Rate Hikes on the Home Staging IndustryJun 17, 2022
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.
The current interest rate is almost 6% for a 30-year fixed mortgage – not historically high, but the rate of increase is sending shock waves across the real estate and staging industries. In September 2021, a 3% interest rate was possible with good credit.
Read on to learn what higher mortgage interest rates mean for home stagers.
Home prices are very likely to fall.
We have an affordability problem in the housing market. It has been a growing concern for years now, but as mortgage rates increase, inflation continues, the job market cools, and the stock market dips, the crazy-high housing prices we have been seeing are simply unsustainable.
As you keep tabs on your local real estate market, you will notice more and more contracts falling through because people are no longer able to qualify for loans they expected to get.
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. 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.
When contracts fall through, it usually means a price reduction will follow as the property goes back on the market.
Demand for homes is cooling.
Home buyers are getting a bit wary of the current high prices. They are seeing their net worth falling 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 likely to increase.
The Realtor.com statistic that “staged homes sell 88% faster, and for 20% more” has easily rolled off the tongue of seasoned stagers for a long time now.
But as the real estate market gained momentum during the COVID crisis, stagers learned to lean more into the last part of that stat, and drop all mention of days on market. The house was going to sell quickly whether or not it was staged. The better sell to potential staging clients was the over-asking offers that staging brings.
Now, days on market (DOM) are going to increase as we see the aforementioned contracts fall through. This means a shift in marketing messaging is going to be necessary for the home staging industry.
We are likely to see an increase in DOM 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.
But, at the same time, the real estate market has a big “recency bias.” If a seller knows their next-door neighbor sold their home for $800k 6 months ago, that is their benchmark for what they expect to sell their own home for. This duality is likely to increase days on market.
The number of agents will likely decrease.
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 for so many. Homes were selling so fast!
Agents didn’t need to work that hard to hold deals together because there were always backup offers. Buyers were overlooking major inspection issues (or waiving inspections altogether). Being a Realtor seemed like fast, easy money, and more than 156,000 people got their real estate license in 2021 and 2020 – nearly 60% more than in pre-pandemic 2018 and 2019.
A slower housing market means agents will need to work more hours for every home they sell – and for less money. More than 10% of agents quit in 2008, when the real estate market crashed, according to the New York Times.
One big difference between now and 2008 is that there are fewer houses on the market. This means even fewer deals to go around – likely forcing more agents to give up their licenses. Compass and Redfin have recently cut a significant portion of their workforce and put a pause on hiring.
Many stagers have built their businesses on relationships with agents. The sudden influx in agents made it difficult to build those relationships with so many new clients.
In our own staging business, we saw that while we were not staging many more homes than we had in recent years, we were working with a greater number of agents.
Fewer agents should help to ease the difficulty that comes with a client base that may only use you once, because they only had one listing.
Demand for home staging is going to rise.
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. The “88% faster” with home staging stat is going to look more and more appealing to agents, who find themselves working more hours per home sold.
Problem: Threat of agent layoffs. Agents who want to keep their jobs will need to do more to differentiate themselves and their listings.
Solution: Staging. Agents who stage can get their clients 20% more for their listing.
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.
Now is a great time to become a certified home stager! If you are already a stager, you might want to start thinking about how to scale your business and how to increase your efficiency. Staging Studio offers online and in-person courses and resources to give you the confidence and skills to build a successful staging business.
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