As Tom Petty sang, “The waiting is the hardest part.” Was he referring to homebuyer hopefuls? Not sure, but either way, it’s almost go-time for those who’ve waited patiently for mortgage rates to finally begin a downward trajectory after years of staying in the high sixes, sevens and even briefly the eights. Inflation has cooled, somewhat, and the Fed has practically promised a rate cut at its next meeting in mid-September.
Agents queried by RISMedia almost universally agreed that there are three main reasons homebuyer hopefuls should buy now:
- No one knows for sure if/when rates will rise or fall. Buyers can always refinance.
- If rates do fall fast, competition for houses will skyrocket, along with prices.
- Start building equity now. Renting is money spent with no equity gain.
There’s a solid chance that the cut will be the first of several, but no guarantees. A lot of folks may decide that rather than jump in soon, they’ll wait for the rates to continue dipping. After all, who wouldn’t prefer a 30-year fixed-rate at 4.5% instead of 6%? That’s where you as the REALTOR® come in, explaining the reasons waiting is very likely the wrong strategy. Because while what goes up must come down is logical, what’s down can still go back up, or stay down, and with inventory still problematic, waiters may lose out to those who pounce.
Plus, even if rates do decline after a purchase, refinancing is out there. So now is the time to get your clients in the buying mood, and to have them get the property that works for them with rates lowering.
“I tell clients that it’s better to buy the right house for their needs now than to ‘settle’ for something that may not work for them later,” says Lisa Reinecke, a broker with RE/MAX in Brookfield, Wisconsin. “For example, I have several buyers that need more space, and some houses we are viewing would be more of a lateral move for them and not meet their main goal of more space/square footage.
“I explain the longer-term costs associated with selling a house they may settle for now and compare it to the cost of perhaps stretching their budget for the short term, as well as the option to adjust their budget with an ARM loan. I am also seeing buyers adjusting their search expectations due to the low inventory, in price, location and amenities in the home. I like to remind buyers of the 80/10/10 rule. If 80% of the house works for you, 10% you can change, and 10% you can live with, then it’s a good fit to consider. I also remind them that they won’t be able to find something that will check all the boxes on their list in a tight inventory market, and to evaluate what they are willing to sacrifice on their list.”
Then there is the logic that goes along with purchasing now instead of waiting for even lower rates, when competition is likely to be much stiffer.
“I acknowledge their thought process, and then remind them that when rates come down it will likely equal more buyer competition in an already super competitive market,” she says. “I educate buyers in my initial buyer consultation as to why it’s still a seller’s market and the factors causing it (demographics of homebuyers, generational charts, lack of building after the housing crisis, etc.) to show that it’s not likely to swing to a balanced or buyer’s market anytime soon. Prices are forecasted to continue to increase despite the current rates now, and with a lowering of rates, they may actually accelerate more.
“Most importantly, I ask them ‘why wait?’ If rates do come down, they can refinance while in the right house. Don’t wait to buy the right house based on interest rates. Just think how awesome it will feel if you’re in your new house and rates come down. It’s easier to refinance than be in the midst of the bidding wars on great homes.”
Bonnie Beddall, designated broker for RE/MAX Metro Realty and RE/MAX Eastside Brokers in Seattle, Washington, recommends buying anytime instead of renting, regardless of mortgage rates, in order to start building equity.
“The price of waiting may be costlier than you think,” she says. “If you are (a) renter trying to buy, and waiting for rates to go down, you are still paying rent, and rents will go up. With homeownership, you can gain equity. Home prices in many areas are still appreciating, which means that over time as you wait, your purchasing power will be less. While every situation is different, these are some points to keep in mind and discuss with your real estate professional who has knowledge of your area.
“We recommend buyers focus on their ‘why.’ For most buyers, a home isn’t a commodity. People have good reasons for buying. They may need to get their kids into a new school by a certain date, or they may be downsizing, or expecting a baby and need more space. It’s hard to time the market with a home purchase, and no one has a crystal ball. If a buyer has a clear ‘why’ in mind, concerns over market fluctuations become less important.”
Eduin De Los Santos, an agent with RE/MAX City Square in East Meadow, New York, makes the point that if finances are in order, then there should be nothing holding a prospective buyer back.
“The best time to buy is when you are financially prepared,” he states. “I know rates are high, but when they come back down, home prices will skyrocket again. I tell clients that if they can afford the monthly payment now, then go for it. But if they can’t make their monthly payment comfortably, don’t buy now. As rates come back down, the competition will be much greater, and houses will start selling way above list, like they were in 2021.
“I tell buyers that there is usually no perfect time to buy. I do my best educating them on current interest rates, home prices and the trends that I see. I don’t get caught up in trying to predict the future, but rather, educate them based on what’s going on right now.”
