You’ve heard the often-repeated line: Interest rates are STILL at historic lows. But there’s a reason real estate agents are repeating this catchy mantra; it’s true! Don’t get me started on that party we held back in the day to celebrate interest rates falling to 10% …
Even so, I get it. At 6% or 7%, rates are higher than they were last quarter or last year, (experts say rates may go to 8% or 9% next year) and that’s impacting your feelings about buying or selling real estate.
Sound familiar? Then you’ve come to the right place – or, errr, guide, because I’m here to break down exactly how today’s interest rates should inspire your real estate decisions.
And a P.S. before we dive in: This advice is given in widely applicable generalizations. If you want to book a complimentary real estate consultation for specialized support and guidance, email me any time: andrew@andrewmanning.com.
Let’s begin by giving this whole interest rates discussion some narrative context. Lower-than-low interest rates go back to 2001, when the government wanted to boost the economy in the wake of the 9/11 attacks.
In 2007 through 2009, the Great Recession also saw our economy quickly downturning, so these artificially low rates continued as a way to motivate positive economic movement. Once the economy began strengthening, the Fed raised rates to a more normal (and sustainable) level … then the pandemic hit.
Yet again, the economy experienced a major slowdown, so the Fed postponed any rate hikes and focused on supporting the economy with infusions of capital, which brings us to today.
Remember: You date the rate and marry the home.
We were spoiled with super low rates for years and now that rates are going back up, we have to keep in mind interest rates should not be the deciding factor in our home-buying or selling decisions. This situation is likely temporary. In 18 to 24 months, we’ll have a completely different refinancing situation on our hands.
With my clients, I’ve seen a shift from fixed rates to more reactive, adjustable rates. People are getting creative with financing and it works. No matter what you do, the payments will be higher than they would’ve been a few months ago but adjustable rates can help with any sticker shock you might experience.
If you’ve been thinking about buying, PLEASE do not let interest rates stop you from purchasing the property of your dreams.
And if rates aren’t deterring you but higher prices are, don’t wait for prices to drop either (they won’t any time soon). Inventory is still ridiculously low, buyer demand is still high and that scenario will keep prices up for the foreseeable future. In our marketplace, we have about a year an a half of back log for people buying a home, and they’ll buy within reason no matter what the rates are.
Is the market dropping with rising rates or is there something else going on here?
Higher interest rates are without question putting pressure on prices – just look at homes in your area with price improvements or how long they’ve spent on the market. But there’s a catch: A lot of those homes should’ve never been priced that high to begin with.
Rising rates are giving off the perception that the market is dropping, with longer average days on market and price improvements on properties. However, in 2021 and into the start of 2022, a lot of people got unrealistic prices for homes that simply weren’t worth what they were asking.
Now, interest rates have caused buyers to exercise more caution, so it’s critical that a home is priced right or buyers won’t bite. (Excuse the rhyme.) When a home is priced as it should be, it will sell just as fast as homes that flew off the market last year.
What does this mean for luxury real estate?
In real estate, the more expensive the home, the more inventory you’ll find today and the more discerning the buyer will be. In and around Los Angeles, the $5-million-and-over range is very top heavy right now, with lots of spectacular properties currently on the market. Luxury buyers know what they want and it’s the difficulty of finding that perfect home – rather than interest rates – that may give them pause.
Let’s talk new construction.
New construction buyers are very sophisticated in what they want and the price they’ll pay. Lucky for these buyers, there’s a lot of new construction happening in sought-after Sherman Oaks, Tarzana and Encino, which means plenty of options for their next property.
While builders weren’t typically willing to engage in pre-sales, builders today are softening to the idea of selling homes before they hit the market. Many builders are looking at offers prior to a house being finished (or in some cases, built at all).
New home buyers should keep in mind they can add in a request for a seller to buy down the rate. This is when they prepay interest to buy down the rate and lower the payments. This trend was popular in the ’80s but like neon and oversized blazers, it’s back! If the price for a new home is right, this request can be a good idea to secure the property.
f you’ve been thinking about selling, the time has never been better. Even though interest rates are increasing, inventory is down, and as inventory starts to build back up, it will eventually put downward pressure on pricing. For sellers today, if you have a house that’s priced right, it’ll sell. Plus, with interest rates predicted to rise to 8% or 9% next year, expect the buyer pool to be more limited the longer you wait to sell.
A perfect example is one of our new listings in Los Angeles, a stunning split-level home with spectacular views of the Hollywood Hills. We just listed it and we’re already getting offers through word of mouth; an agent just called with a buyer who lost several homes in multiple offers and wants this house in this neighborhood.
Especially if your house is in a desirable location, don’t wait to sell! Today’s buyers sit on their iPads and search homes by location; they know exactly where they want to go.
If you’re thinking about selling, let’s talk. We can help you plan a strategy to maximize value now. We have an expansive referral network all over the country, and we’ll put it to work for you when planning your next move, together.