In his latest Reports on Housing breakdown, Steven Thomas says rising interest rates have brought an already “sluggish” real estate marketplace to a virtual standstill. And while we are seeing some of that here in Los Angeles County, homes are still moving, albeit at a slower pace.
It’s all about pricing with precision, educating buyers on their options (“date the rate, marry the home”) and reaching the right buyers with the right home. However, now that rates are in the 7.5% range, there’s a definite affordability issue.
The fact remains, a home costs more now than it did even just a month or two ago. For instance, as Steven explained, let’s assume you are purchasing a $1 million home, with 20% down and have an $800,000 loan. Your monthly mortgage payment with rates at 6% is $4,796. Your payment with rates at 6.75% is $5,189. Your payment with rates at 7.25% is $7,932 and your payment with rates at 7.5% is $9,568. The difference between your payment at a 6% rate and a 7.5% rate is $798 per month, which is a dramatic increase. Add onto this paying your insurance and property taxes and you can see why even a slight uptick in rates can seriously impact affordability for a buyer. And when buyers are impacted, sellers are too, making homes harder to sell and causing that slowdown in the marketplace that Steven talked about in his report.
Of course, there are options to help out buyers, like sellers buying down the interest rate, and 2:1 or 3:1 buydowns are definitely trending right now.
For a buydown, a seller can credit the buyer by contributing a certain dollar amount at closing to the buyer’s lender. This could mean in year one, the interest rate drops by 2%, then by 1% in year two and by year three, it is back to the permanent fixed rate, though by then, the hope is that interest rates are lower and the buyer can refinance. It’s completely legal because it is considered part of closing costs, but always consult with your preferred lender prior to working a buydown into a potential offer.
Even though it’s all trading dollars, a buydown does give the buyer a little more peace of mind. It’s basically delaying the sticker shock of higher interest rates, and with rates in the 7.5% range, this can be really helpful for buyers.
If you’d like to discuss strategies for navigating this market as a buyer or seller, get in touch! I’d be happy to schedule a complimentary real estate consultation and put my 30+ years of experience to work for you! I’ve seen almost every kind of market and I can tell you, they’re all manageable … yes, even this one!
Also, to keep close tabs on real estate and the economy, subscribe to Reports on Housing. The monthly subscription is worth every penny! Steven Thomas covers the entire California market and also dives deep into micro-markets, dialing down monthly trends by ZIP code, which is so helpful when tracking analytics for clients.
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Andrew Manning • REALTOR® • Berkshire Hathaway HomeServices California Properties • DRE: 00941825 • 818-380-2147 • andrew@andrewmanning.com