09/29/2023
How Higher Rates Can Benefit Home Buyers
You may have potential home buyers right now who are holding out, all over the higher interest rates.
Make the message to your client clear – they should NOT be holding out. In fact, the very reason they are hesitating is the exact reason that can benefit them on the house hunt.
Let’s explore how the high interest rates, and even inflation, are a benefit to home buyers in today’s market.
Less Competition
Housing inventory is low. Real low.
Inventory currently sits around only 980k houses, and that includes the ones that are already under contract. In reality, if you exclude the under-contract homes, there are less than 600k houses currently available on the market (Media Mark Spotlight).
So, competition would normally be fierce.
However, because of the higher interest rates and the current inflation, many buyers have been spooked off the hunt. This is good for those serious about purchasing their next home because they have less competition and more sway with the buyer. Furthermore, right before the bottoming out of a slowdown, sellers are a bit more anxious and willing to work with a buyer, especially since there are fewer buyers.
But this is only going to last for a moment, so to speak.
Inflation has been on its way back down, and interest rates are expected to start coming down as well. Things in the real estate market are about to pick back up.
Once inflation and interest have cooled off and gone down, everyone who has been holding off will jump back in the game. The housing market will be flooded with buyers and increase competition in a market already struggling with unprecedentedly low supply. Which leads to the next point.
Housing Prices Will Continue to Rise
Houses have continued to appreciate, even during the slowdown from high rates and inflation. No, they aren’t increasing at the crazy pace they were between 2020-2022, but they’re still going up.
Historically speaking, once things have bottomed out, and rates come down, the rate of appreciation will increase. After the market bottomed out in 2011, home values appreciated by 8% the following year.
Furthermore, unlike the housing market in 2012, when there were over 2 million homes in inventory, we have less than 1 million today, as previously mentioned. The fiercer competition will very likely drive housing prices up even more.
So, if any of your buyers are holding out for housing costs to drop, tell them that simply won’t be happening. This is not at all like the situation in 2008 when housing prices plummeted.
So, since that is the case, now is the time to spring on a purchase, before houses get even more expensive. A house that may be affordable this year may not be next year, even with the current interest rates.
The Impact of Higher Rates Has Been Exaggerated
And let’s talk about those interest rates. Their impact has been exaggerated and it’s scared away many buyers who would be in a perfect position to purchase their next home.
The higher interest rates do not impact monthly expenses or yearly costs that much. For a mortgage of $400k, if rates rise 1%, that only equates to approximately $257 extra a month, which barely equates to $3,000 more for the whole year.
The increase in interest rates over the last year or so is not going to impact your mortgage that much for most buyers (unless you were one of the lucky few who purchased a home when rates were in the low 3 percents).
However, house prices that rise 8% or more in a year certainly will.
Even if you purchase now at a high interest rate now, the reward will be getting your house at a lower price.
Once the interest rates come down, you may be able to refinance your home and be very comfortable.
Ultimately, interest rates WILL come down. Housing prices will not.
Bottom Line: High Rates Are Your Buyers’ Friend
The bottom line, especially for folks who are sitting on a lot of equity in their current home, is that these high interest rates are actually their friend. They need to jump in the game now, while there is far less competition and more compliant sellers who are nervous about the current market. They will be far more likely to get the home they want, refinance in a year or so, and be very comfortable in their dream home.
Now is the time to get in the game before it is too late.
Experience and reputation you can depend on.
Equal Housing Lender - FL NMLS 1072551 & NC I-223183
