Tips For Buying A Home When Interest Rates Are High
Written by Falynn Auston
Let’s discuss the current high interest rates and what effect they are having on the real estate market. If you are currently looking to buy a home you could be wondering what considerations you should take into account with high interest rates, if it’s even wise to buy a home at this time, and if you do buy a home, how you can maximize your chances of getting the best interest rate possible. Read on for answers to these questions and more.
Q: What effects are the current high interest rates having on the real estate market, and how are homebuyers reacting to these interest rates?
The current interest rates are floating between high 7% and low 8%, and the increase has most definitely made an impact on the current real estate market. Right now about 90% of our buyers are all cash buyers, and the financed buyers we are working with are essential moves: death, divorce, downsizing, or relocating for work. The lateral move buyers we would typically have–those who are looking for their next home because they want a larger house or want to upgrade to a newer one–just can’t stomach the mortgage payment difference. Most if not all current homeowners are sitting with 2-4% interest rates and it just doesn’t make sense to move, so they are making do with what they have and leaning into renovating their current home to make it work for the time being. Otherwise they would essentially be trading the same home for double the mortgage, and that’s just the interest rate difference, that isn’t taking into account the appreciation we’ve seen since their last home purchase. Most of the lateral moves are sitting on the sidelines waiting for the rates to drop, or if they do want to move they are renting their current home at the low interest rate and buying a new one, which in turn is contributing to the inventory shortage.
Q: What considerations should a homebuyer weigh when presented with high interest rates? How can they decide if buying a home is a wise choice at this time, and how can they be sure they’re maximizing their chances of getting the best interest rate possible? What are some tips for homebuyers to help them better cope with high interest rates?
My advice is: the right time to buy a house is when it’s good for you. Run the numbers and pick the payment that works best. Real estate is a long-term hold—just get in the game and start gaining the appreciation.
The few financed buyers we do have are negotiating an interest rate buydown in their home purchases. We are leveraging permanent interest rate buydowns and temporary buydowns to make their payments more affordable for the time being. The hope is the rates will ease up and these buyers will be able to refinance to get their payment down.
We are seeing a ton of seller concessions with temporary buydowns for the buyer’s interest rates. There are programs such as 2-1 and 3-2-1 buydowns, which is basically 3% off their interest for the first year, 2% off their interest for the next year, and 1% off their interest for the last year, and then they go to their full interest rate for the remainder of the life of their loan. Currently we are seeing most home sales ending up with some form of concession whether it’s a rate buydown, discount on the purchase price, or a combination of both. For example, I just sold a home that we offered over asking BUT financed a seller credit to help with a permanent rate buydown. It made more financial sense to pay more but buy down the points versus getting a discount on the house price, and we ended up with a more affordable monthly payment.
There are so many scenarios on a case-by-case basis, so it is critical to have a team behind you running all the numbers and helping you make the best decision. My advice is to hire a Neighborhood Expert and a local lender. Working with a local lender—someone who will be available in the evening and on weekends—is key, and we have a few lenders we prefer working with.
Q: What is some advice for a homebuyer who decides to try to wait out the housing market until interest rates fall?
I hear my buyers saying, “We are going to wait until the rates come down,” but just a few months ago before rates jumped I was hearing my buyers say, “We are going to wait until there is less competition.” Again, as I said earlier, the best time to buy is when it works best for you. If you work with a good agent and lender they will help educate you on the best investment decision. Also, if you do wait to buy, take into account that when the rates fall, all of the pent-up buyer demand will unleash and more buyers will be fighting for the low inventory, raising home prices and creating bidding wars.
Falynn Auston has a can’t stop-won’t stop attitude when it comes to helping you buy or sell your Gig Harbor home. Whether you’re looking for your first home, investment property, or downsizing, she’s there for you every step of the way and is here to arm you with all the information you need to make the best investment decision.
A true neighborhood expert, Falynn will tell you everything you want or need to know about Gig Harbor, from the best breakfast spots to where you can find the best views of the sunset. She knows all the local people and all the local happenings. Her husband, a captain at the South Kitsap Fire Department, and her family are deeply integrated into both communities.