Written By: Linda Nelson ~
Some buyers are pausing right now pondering whether this is the right time to buy a home as interest rates spiral upwards and the threat of a recession looms. Maybe better prices are in the future? Here are some thoughts on this subject.
- Every buyer's circumstances are different and specific to them. It's critical for professional agents to spend the time carefully evaluating ALL the parameters of these specifics clearly and accurately before being in a position to structure a curated strategy forward.
- Stop reading headlines and averages from those spewing 'reports' about non-specific data. The data and insights that are hyper-localized are the only ones that matter. Some properties may be over-valued. Some may be fair value and others may even be UNDER-valued. Specifics matter more now than ever. Averages are meaningless and unintelligent.
- Evaluate all financing options. Not all mortgages - or borrowers - are created equal! Average fixed 30-year mortgages are not for everyone. Rates can vary considerably by location, property type, buyer profile, etc. And rates will probably rise further.
- If a recession is indeed coming (the certainty is that they inevitably do come, although no-one can be certain of their severity) usually the FED lowers rates to stimulate growth. With sharply higher rates now, at least the FED has the gunpowder to do so. A year ago, they had virtually none. Refinancing at lower rates in the future is always a possibility.
- Inflation is high now but has ALWAYS been around. Even low inflation raises rents. You have to live somewhere usually for around 60 years. And many buyers who are unable to buy due to rising rates or job losses turn to renting, thereby further fueling rent prices and demand.
- When times get uncertain, there is always a flight to quality. With the inventory of buying options rising, focusing on the best quality is always smartest. And now you may have more choices. Buying a quality home for a fair price is always smarter than a bargain price for a bargain. There is one thing worse than buying a bargain.....owning it!
- With fewer buyers, the chances of over-bidding is reduced, although this will vary notably from area to area and also property type/price-point. EVERYTHING will be guided by supply and demand. By not over-bidding - expected in many parts - those saved dollars may absorb some higher borrowing costs.
- Often the best properties are withdrawn from the market if markets don't deliver premium pricing. That can reduce inventory options.
- Sellers locked into low interest rates may not sell now, reducing inventory options.
- Cash buyers have been waiting for this moment. They will feel more empowered now than ever. But remember how disappointed they were with their options in April 2020? Not that many REAL bargains back then....
- When calculating monthly costs to own, always factor in the amount of tax deductions. Consult with a professional accountant: A higher interest rate produces a larger dollar amount deduction even with the deduction price limit...that can offset some of the higher borrowing costs.
- For those living in high real estate tax environments, the SALT deduction limit poses opportunity. Buyers who close all cash and then draw out equity from their homes within a month of the purchase for investment purposes may be able to deduct ALL the interest on that.
- Be super-prepared. A higher credit score fueled by cleaned up credit can deliver lower rates and make you more attractive to sellers open to negotiation. Already we are seeing price reductions in areas. A $500k home financed at 4% has the same monthly mortgage payment as the same home financed at 6%....priced at $400k.
- Job security. In a jobs environment where there are 2 jobs for every unemployed person, the risks for massive job losses are lower than prior corrections. Owning a home prior to a job loss is smart as borrowing without a job is very tough-to-nearly impossible.
- Apply balance-sheet thinking. evaluate ALL the aspects of the move. In a 'down' market, upgrading is smart. Selling a $500k home at a 10% discount delivers a $50k 'loss'....then buying a $1m home at a 10% discount delivers a $100k 'gain'.....leaving you with a net $50k gain. And often the lower priced homes have smaller discounts.
- Focus on the LONG TERM. The best investors are not day-traders. They don't aim to time markets 'perfectly'. They seek longterm returns, benefits and growth. All markets recover. The US is still grotesquely UNDER-built.....that may not improve for decades, possibly slowed now as builders face higher borrowing costs....which could also fuel home price inflation.
Today - more than ever - the ADVISORY role of professional, ethical agents who place the interests of their clients above their own can deliver an invaluable service to their clients. Unlike those merely obsessed with the transaction, true professionals provide invaluable evaluation, non-Google-able insights and data, and the guidance to consumers well before a transaction occurs, during the transaction, and forever after.