Rates are high, does that mean I should pump the brakes on my search?
The real estate market is ever-changing, and with it, so are interest rates. While low-interest rates have their own charms, there might be unique buying opportunities when interest rates are soaring. As a homebuyer or seller, it's essential to understand how to navigate the real estate market in every interest climate.
1. Do Your Homework: Market Research is Key
Before diving into the real estate market during high-interest rate periods, do a little research so you can begin to understand what is going on with the state of your local economy. Stay updated on current economic conditions, market trends, and interest rate projections. Tools such as market reports, reputable news articles, and expert analysis can provide valuable insights to help you make informed decisions. This does NOT take precedent over advise from your Realtor, Mortgage Officer, and trusted financial professionals. The knowledge you gain will merely help you to understand the greater picture painted by these trusted professionals. Be sure to focus on the market research for the area where you are trying to buy. National averages will usually differ wildly from what you can expect in your area.
2. Determine Your Budget
High-interest rates inevitably impact your purchasing power, therefore, it becomes crucial to reassess your budget and financial goals. Have a Loan Officer calculate your monthly mortgage payments considering the higher interest rate scenario. This exercise will give you a realistic idea of what you can afford and prevent any surprises down the road. As usual, it’s a good idea to provide all of your financial and credit information to a loan officer before you even consider looking at properties and acquire a pre-approval. Pro-tip, have your loan officer generate a few pre-approvals at different price points, and ask them to give you an estimated monthly payment with each.
3. Evaluate Long-Term Goals
As with any rate climate, it's important to consider your long-term plans. Are you buying a property as an investment or a forever home? If it's an investment, analyze potential rental income and property appreciation. If it's a forever home, think about your lifestyle and whether high-interest rates might be offset by other factors, such as desirable location or long-term stability. One important point I always try to explain to my clients is this: you pay for it somewhere. When rates are low, list prices skyrocket. When rates are high, list prices creep down and buyers tend to have more negotiation power. Remember, many times there is an option to refinance in the future with your lender when rates come down, but you can never renegotiate the list price you pay.
4. Negotiate with Sellers
When interest rates are high, sellers may face challenges in finding buyers due to reduced affordability. This situation can provide you with leverage as a buyer. Negotiate effectively, emphasizing that high-interest rates affect affordability, and come prepared with a strong offer and favorable terms. Sellers may be more inclined to give a rate buydown allowance, cover closing costs, or a combination of the two to make it to the closing table. To everyone who was laughed out of the room in 2020 and 2021 when they asked sellers to pay closing costs: Now is your time to shine.
5. Explore Alternative Financing Options
Although traditional mortgage loans may come with high-interest rates during certain periods, it doesn't mean there aren't alternative financing options available. Research different mortgage products such as adjustable-rate mortgages (ARMs), balloon mortgages, or FHA loans. These alternatives may provide more flexibility and lower interest rates, depending on your financial situation and risk tolerance. Be sure you heed the advice of a trusted lending professional on all of these options. This is not the time to read a Forbes article or two and call yourself an expert.
6. Seek Professional Advice
Navigating the real estate market, especially during high-interest rate periods, can be challenging. Consulting with a licensed Realtor and a good lender are essential to a positive real estate experience. Try to limit outside noise, no matter how many times your friend’s dad or dad’s friend say they “purchased a lot of real estate in their day.” You’ll thank me later!
