Real Estate: BRRRRRR! Baby it’s cold outside!

By Matthew Trudel

Just like the temperature changing outside and how things are cooling down, so is the real estate market this month. To be clear, I said, “cooling down”, not dropping off a cliff or frozen solid. While interest rates are in the mid 7 percent range and have slowed things, they have not caused the market to come to a grinding halt.

There are still many buyers who desire a new home and the inventory is still very low. The 30-year fixed interest rate is an issue, however there are still several options for both the buyers and the sellers and what they can do to help offset those higher interest rates. We will cover both sides of this and also touch base on a few other points that certainly apply to the current market conditions.

Buyers who are actively looking now most likely have the most flexibility to help improve their situation in purchasing a new home with the current market conditions. There are many different financing options that lenders are offering.

Several lenders are offering out Variable Rate loans now as an option, so your interest rate is lower. I am not a fan of this personally because a majority of people will not use this in an appropriate way and could potentially get themselves into a negative financial situation. That being said, a Variable Rate does have its purpose as long as you have a well thought out plan for how you will pay off or refinance that loan to ensure you do not get into a place where you cannot afford your payments.

Another option to discuss with your lender or mortgage broker is what it would cost to buy your interest rate down a little. This is done by paying a point or two at closing. For those who may not know what a point is, it is 1 percent of your loan amount that you are borrowing to purchase your home. This is something that you can ask a seller to pay, along with them paying some of your closing costs.

Sellers can make the decision ahead of time to pay a couple points or closing costs and advertise so that all buyers know upfront that they can get a lower interest rate if they purchase your property at no extra cost to the buyer.

Another option for some sellers would be to consider owner-financing the property to the buyer for a few years. This is easier if the seller owns the property outright, but if they do not own the property outright there are still some possibilities. The seller could opt to hold a secondary mortgage on some or all of their proceeds for a few years if the seller doesn’t need the funds right away.

Private financing is also an option, these days. These are shorter term loans, usually 2 to 5 years. The rates vary depending on who is lending the money and who they are lending it to as well. The rates are very competitive and sometimes can be a little better. I know of one deal I negotiated recently, and the rate was at 7 percent.

Granted the buyer needed to put 20 percent down which is a lot these days, but 7 percent interest was a lot better than the 7.75 percent he was quoted. He also saved a lot on closing costs and other expenses like the appraisal fee.

So there are a lot of options to help both buyers and sellers combat the higher interest rates we are currently seeing. I know 7.5 percent seems like a really high interest rate but that is only because we were spoiled for a few years with interest rates being around 3 percent.

Reality is our economy cannot sustain interest rates at 3 percent, which is basically free money if you ask me. I believe rates will come down a little next year and settle in around the 6 percent area, maybe just below that. If everyone could just have a crystal ball it would make all of this a lot easier. Have a fabulous Thanksgiving everyone! <

This article was written by Matthew Trudel, owner of Five Star Realty, Windham. Call him at 207-939-6971.