There’s a certain always-in-the-news topic that is totally off the radar for some people but a must-follow for others. Then at some point they often pivot, with the disinterested ones suddenly obsessed with the topic and the zealots pretty much losing interest.
The subject? Mortgage rates. Renters or others not planning to purchase property couldn’t care less. Homebuyers? They watch every move up and down like a child playing with a yo-yo. As do potential sellers, who may consider buying a new home but won’t if their new mortgage rate would be much higher than their present one.
As REALTORS®, you’re working with the interested ones exclusively, which is a blessing since they want to buy, but can be a curse if the current 30-year fixed mortgage rate, which 90% of buyers want, gives them pause. And with the rate hovering around 7%, that is the case today. So now it’s more important than it has been in several years to have answers and a reassuring tone when the subject arises. And it will arise. Will you be ready?
Agents all agree that the universal truth for skittish buyers is “marry the house and date the rate.” Commit to the house you want regardless of the mortgage rate at the time, as rates can change, there are options beyond the 30-year fixed-rate mortgage and equity cannot start to be built until mortgage payments have begun.
“I also explain that we’re probably not going to see 2% – 3% mortgage rates again for a long time, so there’s no point in waiting to buy,” says Anam Hargey, a broker and team leader with @properties, in Chicago, Illinois. “Interest rates are most likely going to be around 6%, or more, for a long time. Also, if rates somehow were to drop, we still have low inventory, so it’ll be a multiple-offer frenzy for houses all over again.”
So what should the conversation be when buying clients are nervous about the high rates?
“I tell them to ask their lender about considering an adjustable rate mortgage (ARM), and I educate them on how they work,” says Lisa Reinecke, with RE/MAX Realty Pros, in Brookfield, Wisconsin. “Most current buyers haven’t heard of them or don’t understand them because 30-year fixed rates were so low for so long that ARMs went away as a possibility. I also remind them that their interest rate doesn’t have to be permanent for the entire time they own the house. They can always refinance later if rates improve.”
Providing a historical perspective to buyers is a strategy employed by Bonnie Beddall, designated broker for RE/MAX Metro Realty and RE/MAX Eastside Brokers, in Seattle, Washington.
“Rates even now are lower than the historical average, which is close to 8%,” she says. “In 2021, we reached historic low interest rates around 2.5%. Many economists I have listened to are predicting that we may not see rates that low again in our lifetime.”
So what do these REALTORS® say to clients? There are several angles they recommend.
“I tell them it’s better to buy the right house for their needs now than to settle for something that may not work for them later,” explains Reinecke. “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 additional square footage. I explain the longer-term costs associated with a house they may settle for in this market, 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 expectations due to the low inventory, in price, location and amenities. I like to educate them about 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.”
Beddall has clients focus on their “why.”
“For most people, a home isn’t a commodity,” she says. “People have good reasons for buying. They may need to get their kids into a new school by a certain date, may be downsizing or expecting a baby and need more space, or may be relocating and need to be moved within a certain timeframe.
“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. It’s vital to make wise decisions and buy smartly, and this is where the guidance of a professional REALTOR® can be crucial.”
And yet, with all the information provided and all the expertise shared, there will still be some holdout buyers who won’t budge until the rates come down. They’re the toughest nuts to crack, but even they can be persuaded to act now.
“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,” notes Reinecke. “I educate buyers in my initial consultation as to why it’s 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 increasing 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. It’s not a permanent ‘fixture’ if the house is the right fit. Just think how awesome it will feel if you’re in your new house and rates do come down. It’s easier to refinance than be in the midst of the bidding wars on great homes.”
Beddall stresses that money lost when waiting and waiting to buy cannot be made up through a slight mortgage-rate decrease.
“We discuss that the price of waiting may be costlier than they 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.”
