Today’s real estate market presents challenges having buyers and sellers relying on Realtors to help them navigate those changes in a way that will best help them to meet their real estate objectives. With rising interest rates, buyers question timing and their ability to purchase and sellers trying to determine how to achieve a sale with interest rates and other financial factors in flux.
There are several ways of looking at the impact of rising interest rates that provide a more positive way of looking at the market.
One of the insights that should be considered is the relationship of deals that were put together in 2020 and 2021 at interest rates in the 3.5% range vs. costs of purchasing currently at rates in the 7% range. In 2020 and 2021, and earlier 2022, there are costs associated with paying considerably over asking price, buying as is and taking on repair expenses just to get a property, possibly include appraisal gaps language in their offer or no appraisal contingency, amongst other techniques that were utilized to get an offer accepted. The payment at 3.5% is certainly more attractive, but the other costs mentioned become hard costs. The current scenario with buyers faced with interest rates in the 7% range means that competing offers become less likely so that prices paid will not be escalated over asking price, inspection contingencies more likely with repair negotiations absorbing the future repair expenses for buyers to a large extent, and the elimination of appraisal gap language or waiving appraisals.
When considering the amount of time it would take to make up the difference at 3.5% accepting higher pricing and future repair expenses vs. a 7% rate with more realistic pricing and opportunity to minimize future repair expenses through inspections, it very well can mean that proceeding with a purchase now is not necessarily a disadvantage because the recuperation time frame could be 10 years or more. Within that 10 years, or more, refinancing opportunities very likely will arise, and in fact mortgage companies are offering future refinancing incentives in the programs they are offering.
In addition, rate buydowns are an option for buyers when obtaining financing. In the current environment, possibly sellers would be willing to pay for a buydown through a seller concession. Another option in financing is an ARM loan that has caps and better indices than ARM products in the past.
Refinancing possibilities, as well as buydown and ARM products for buyers should help buyers and sellers to be more comfortable with moving forward with a sale. A Realtor can assist with navigating these possibilities to best help buyers and sellers in the current real estate market.