At the beginning of the year, interest rates were at an all-time low. It was a sellers’ market with buyers competing for homes that would sell for way above the asking rate.
Real estate agents are still in a good position to buy and sell, but they must take steps to make buyers feel comfortable proceeding with their transactions. This article will tell you how to approach the conversation so you can remain lucrative amid the rising rates.
Mortgage rates are rising
Inflation is going crazy. With gas prices and food prices rising, the Fed had little choice but to raise interest rates. Interest rate increases mean people spend less making for reduced demand which forces companies to drop their prices for goods and services.
But are the feds taking it too far? They have raised mortgage rates in both June and July by .75% each month making for a rapid increase that hasn’t been seen since the 1980’s. They add to two previous increases making for a total of four increases this year alone.
Each .25% increase means an extra $25 on every $10,000 you have in debt. So, the .75% spike translates to an extra $75 interest for every $10,000 in debt. The four 2022 spikes combined equal a 2.25% raise in total meaning homeowners are now paying an extra $225 in debt.
The rising rates are keeping many would-be buyers in their apartments. They are also negatively affecting the stock market. They are boosting loan payments on cars and credit cards as well.
What’s more, many people fear there will be a housing crash. Although measures are now in place to prevent this from happening, such as higher standards for loan approval, it does little to allay fears. This is further fueling the market slowdown.
Buying is particularly difficult for first-time buyers who don’t have equity in an existing home.
How higher interest rates change how you approach a conversation with buyers
While the increasing interest rates are concerning, there are still many bright sides to the market. And bringing these up in conversations with buyers could make all the difference when it comes to them making the decision to sell. Here are some key points you should be touching on.
- The rising interest rates means sellers are lowering their prices: Sellers are lowering their prices to get their homes sold which helps to counter the interest rate increases.
- A positive outlook for property value and housing prices: Many people fear that interest rates will continue to increase negatively affecting their property value if they decide to buy. However, if the economy grows fast enough, their properties will still grow in value making for terrific investments.
- Buy now to avoid rising interest rates in the future: Interest rates have been increasing and there’s no sign of them stopping any time soon. Buying now could save you from investing when rates are even higher.
- Now is a great time for investing: The rising interest rates mean fewer people are buying and more people are renting. This means now could be a great time to invest in a rental property.
You can also advise buyers on how to keep their mortgage rates low despite the rising interest rates. Here are a few tips you can offer:
- Credit scores matter: Interest rates are high, but they will be even higher if you have a poor credit score. Clients can improve their credit score by paying off debt. It’s also possible that their scores may have been brought down by a mistake on their report. Reviewing their reports and having mistakes corrected can improve their credit.
- Reassessing their budget: The rising interest rates make certain properties unaffordable to buyers. However, they may be able to get in on the ground floor of the housing market if they settle for a lower-priced property. This will allow them to build equity making a future dream house purchase more doable.
- Shop around: Different lenders offer different rates. If you shop around, you may find a rate that’s workable within your budget.
- Purchase points to lower interest rates: Mortgage points can be purchased to lower your mortgage rates. One mortgage point typically lowers your rate by .25% and costs around 1% of your loan amount. So, if your current rate is 4% on a $500,000 loan, you can buy 1 point for $5000 which will lower your rate to 3.75%.
- Get a mortgage commitment instead of a pre-approval: Most borrowers will get a pre-approval before submitting an offer on a home. This lets the seller know they are likely to be approved for the loan, so the financing doesn’t fall through. A mortgage commitment comes with a similar assurance, but it puts fewer conditions in place for the buyer’s financing. This means the transaction will run more smoothly so no extra fees are added. However, it also adds time to the transaction process.
- Investigate down payment assistance programs: A down payment assistance program can help first-time buyers afford down payments which can ease the burden of rising interest rates. Buyers will have to meet certain requirements to qualify.
Today’s rising interest rates might be causing some homebuyers to get cold feet, but agents can help reduce fears by focusing on the positive points of the current market and suggesting solutions that make buying more affordable. With the right approach, you will successfully counter the uncertainty that exists in today’s world of real estate.