Rising Interest Rates

Feeling the pressure of rising mortgage interest rates? Do not panic! You can’t implement a strong strategy for success if you allow yourself to panic. Whether you are a buyer, seller, or market observer, this article will help outline options in the current market. Time to huddle in and get started.

Current Market & Interest Rates

The real estate market is shifting and contouring; this is normal. When there is a base line market shift it is necessary to adjust your strategy to remain successful. As interest rates rise, the strategy must change.

How is the current market different from 4+ weeks ago? In many local markets homes are now selling at or near list price. Additionally, homes are active on the market for a longer number of days. Does this sound familiar? It certainly does. We are moving towards a more balanced market environment, which is normal. This normalcy allows both buyers and sellers a “minute” to navigate through the important decisions when purchasing or selling a home.

Interest Rates Historically

1970’s: 30-year fixed-rate mortgage interest rates hovered between 7.29% and 7.73%. Rates bumped up to 10.11% toward the end of 78, steadily rising to 12.90% by end of the decade.

1980’s: Continued hikes in the fed funds rate pushed mortgage rates to an all-time high of 18.45% in 1981. While rates came down by the end of 1982, they mostly stayed in the double-digits for the rest of the decade.

1990’s: Interest rates crossed into the single-digits by the beginning of the 90’s, with rates briefly dropping below 7% for most of 1998.

2000’s: The downward trend in mortgage rates reversed course with rates jumping back above 8% in 2000. However, they gradually made their way back below the 6% mark by 2003 and remained in the high 5% to low 6% range for the rest of the decade. In 2009 they briefly dropped to a decade low of 4.81%.

2010’s: Mortgage rates dropped to a record low of 3.35% in November 2012. For the remainder of the decade, rates stayed in the 3.45% to 4.87% range.

2020’s: The first two years were a roller coaster ride, with rates dropping to new historical lows. After the COVID-19 pandemic hit the US in 2020, the Federal Reserve cut the federal funds rate almost to 0% to stabilize the economy.

2022: Interest rates have steadily risen each month, with the U.S. weekly average 30-year fixed rate rising to 5.30% as of May 12, 2022.

Buyer Strategy

Take a deep breath. We’ve just left a time when interest rates were the lowest they’ve been in recorded history. We’ve also just left a time when homes were under contract almost as soon as they came on the market, prices were high and bidding wars made them higher. For many, this also meant lowering their down payment to have money for low appraisal and/or waiving appraisals and inspections altogether. Many were faced with higher mortgage insurance and paying for waived inspection repairs post-closing.

There is good news with a good strategy. Savvy buyers will redirect funds from the following:

  • Money allotted for bidding up on a home
  • Money allotted to cover a low appraisal
  • Money allotted for waived inspection repairs

To reduce their payment by:

  • Buying down the rate – speak to your trusted lender
  • Making a higher down payment to achieve a lower rate and payment
  • Making a higher down payment to reduce or eliminate mortgage insurance and lower your monthly payment
  • Negotiate inspection findings during the transactional process
  • Take the time to look for the right home for you, in your budget

If rates rise, you’ll be glad you were locked in gaining equity rather than paying rent. If rates go down, you can refinance at a lower rate. As always, continue to improve or maintain your credit rating to qualify for the lowest rates available.

Seller Strategy

Take a moment and take the time to prepare. Properly setting expectations prior to market day one will be vital to your success. Increased days on the market may be inevitable with rising inventory levels and an uptick in interest rates. Savvy sellers need good counsel when setting a list price that is acceptable and attainable in the current market climate. In addition, you will need to be prepared and willing to work through inspection findings. Don’t expect the market to hurdle over deferred maintenance items that low inventory levels may have once absorbed. Home prices aren’t necessarily falling; they are no longer leap-frogging up with as many bidding wars. It is crucial to have a strong marketing plan from start to finish.

Buyers & Sellers

The real estate market is an ebb and flow. Contour with it and get your goal! Want to buy or sell a house? The market is here. It hasn’t left. Call us to help you achieve your real estate goals.

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