Higher mortgage rates have slowed the market, but they’ve also opened the door for buyers to negotiate seller concessions, rate buydowns, repairs, and closing costs. And down-payment assistance may make buying more attainable than you think.
Let’s talk about the rates
As of October 2, Mortgage News Daily’s top-tier 30-year fixed rate hit 7.57%, a level we haven’t seen since November 2023. That matters. A higher rate changes your monthly payment and how much home you can comfortably afford.
But I wouldn’t tell you to put your plans on hold based on the rate alone. Look at the whole picture:
- What can you comfortably afford each month?
- How much cash do you actually need to buy?
- Do you qualify for down-payment assistance?
- Can we negotiate a seller credit or a temporary rate buydown?
- Is there room to negotiate on price or repairs?
- How long do you plan to own the home?
Slower demand means more negotiating power
Affordability is keeping many buyers on the sidelines, and homes are taking longer to sell. In San Diego, homes and condos under $750,000 are averaging 126 days to go under contract, up from 99 days last year. From $750,000 to $1 million, it’s 94 days, compared with 79 last year.
That doesn’t mean homes aren’t selling. In August, 52% of San Diego homes still sold at or above their last asking price, and in July the median single-family price hit a record $1.143M. Real estate is seasonal, though. Prices tend to ease through fall and winter before climbing again in the spring, which makes fall and winter a strong window for buyers.
Condos may offer the biggest opportunities. In some areas, a large share of listings aren’t selling and are eventually pulled from the market. When a seller has sat without an offer, there’s room to negotiate. According to Redfin, more than half of San Diego sales included a seller concession, which could mean:
- Money toward your closing costs
- Help funding a temporary rate buydown
- Repairs or credits after inspection
- In some cases, a lower purchase price
Those add up quickly.
What is a 2-1 buydown?
One strategy we’re using with buyers right now is asking the seller to fund a 2-1 buydown. The seller contributes money at closing that temporarily lowers your effective rate: two percentage points lower in year one and one point lower in year two. In year three, your payment is based on the full rate you locked at purchase.
Unlike an adjustable-rate mortgage, you know exactly what your rate will be each year. The key is making sure you’d be comfortable with the payment at the full rate before you buy.
You probably don’t need 20% down
This is the biggest misconception I hear from first time buyers. Many assume they need $100,000 or more saved before they can even start looking in San Diego, and that’s often not true.
- Many loans require just 3.5% to 5% down
- VA loans for military members and veterans can require no down payment at all
- CalFHA offers dozens of down payment assistance options most buyers don’t know about
A larger down payment can have advantages, depending on your finances, loan program, and goals. But waiting years to hit an arbitrary 20% number, while renting and watching prices climb, isn’t always the smart move.
Down-payment assistance isn’t just for low-income buyers
Depending on the program and your eligibility, assistance can range from roughly 3% to 20% of the purchase price. Our team recently helped a first-time buyer secure $150,000 in tax-free assistance from the state of California, and we typically see $20,000 to $150,000 for first-time buyers. Over the past four years, our team has helped buyers secure more than $1 million in assistance, and many first-time buyers have purchased with less than $10,000 of their own money.
Income limits are also higher than most people expect. In San Diego County, CalHFA’s current limit for many first-time buyer programs is $259,000, so a household earning close to $260,000 may still qualify, depending on the program.
And because sellers are negotiating, we may be able to combine assistance with a seller contribution toward closing costs or a rate buydown.
Before you tell yourself any of these, find out the facts first:
- “I don’t have enough saved.”
- “I make too much for assistance.”
- “I need 20% down.”
- “I’ll look in a few years.”
You may still decide waiting is right for you. Just make that decision with real information.
Is the market about to crash?
The data doesn’t point to the conditions that usually come with a housing crash. Housing analyst Steven Thomas of Reports on Housing put it simply: “No imminent housing crash is lurking around the corner.” A real downturn typically needs weak demand, an oversupply of homes, and significant seller distress. We have weak demand, but inventory and distressed selling look nothing like the last crash.
The national picture agrees:
- Existing-home sales fell 2% in August, but the national median price was still 1.6% higher than a year ago, the 38th straight month of annual gains
- The FHFA reports U.S. prices up 2.6% year over year in July
- In San Diego, the S&P Cotality Case-Shiller Index showed prices up 1.63% year over year in July, the fastest annual gain in nearly a year and a half
Homes aren’t suddenly cheap, and that’s not the opportunity. The opportunity is leverage, which tends to grow for buyers in the fall and winter.
Should you wait for rates to drop?
Nobody knows where rates will be in six months or a year. But if rates fall, many buyers now on the sidelines will return, which means more competition and fewer sellers willing to pay closing costs, fund buydowns, or negotiate on price. Lower rates also tend to push prices up, offsetting some of the benefit. And you can refinance a rate later, but you can never change the price you paid for the home.
If you’re buying a home you can comfortably afford and plan to hold for five to ten years, I think you’ll likely be glad you did. That said, if you know you’d need to sell in a year or two, it may not be the right time. The first few years may not bring pandemic-era appreciation, rates may stay elevated, and there are never guarantees. But a home is also somewhere to live, so the real question isn’t “Will this be worth more next year?” It’s “Does this home fit my life and budget, and am I comfortable owning it for the long term?”
Don’t rule yourself out before you know your options
My job isn’t to convince anyone to buy. It’s to help you understand your options, look at the numbers, and tell you honestly when I see an opportunity that makes sense. Sometimes that means “you’re ready.” Sometimes it means “let’s work on a few things first.”
What I don’t want is for you to assume you can’t buy because rates are high, you don’t have 20%, you think you earn too much for assistance, or you’ve read too many scary headlines. Explore down-payment assistance, talk with a trusted lender, and see what’s out there. You may decide now isn’t your time, or you may find homeownership is closer than you thought.
Sources: Mortgage News Daily; Redfin; Reports on Housing; California Housing Finance Agency (CalHFA); National Association of Realtors; Federal Housing Finance Agency; S&P Cotality Case-Shiller Home Price Index.
