Real Estate: High Interest Rates – Low Inventory

By Matthew Trudel

Today’s market is very challenging for both buyers and sellers, which in turn makes our job as a REALTOR representing our clients all that more important. With interest rates hovering around 7 percent for buyers with good credit, there are some options out there that buyers should keep in mind. We will go over a few of those later in the article, but first I want to go over some of the challenges sellers are facing whether their house is on the market, or they are considering putting it on the market this fall.

A limited pool of buyers is a big issue for any seller or soon to be seller. The rise in interest rates has certainly lowered most buyers’ purchasing power by 25 percent or more. What this means is that a buyer who qualified for a $425,000 home might only qualify now for a $300,000 home. That is a huge difference, and it has been affecting the market for months. This means that fewer buyers can qualify to purchase a seller’s home which results in two things likely happening. The house could be on the market for a longer period of time, and the price you get might be lower than what it would have been six months ago.

Another thing sellers are facing is time. Fall has arrived and the temperatures are cooling down. When this happens the market cools down as well. There is not a lot of time left before December arrives and with that comes the snow. Houses do sell during the winter, but they don’t sell as fast as they do in the Spring and Summer. That being said, sellers also have to figure out where they are going to live once their house sells. Which might mean they become buyers and face a whole new set of problems, which is what we will discuss now.

Buyers are faced with low inventory and their purchasing power has been lowered. This is mostly because of the interest rates. Making sure your credit is in excellent condition will really benefit you when the market is in this condition. There are programs out there that will get your rate below 7 percent, but you need excellent credit. Another option is to have the seller pay a couple of points to buy your interest rate down a little. This could get you down below 6.5 percent interest rate. Buyers should remember this as well, you “marry the home and date the rate.” This simply is a reminder that you are not locked into the rate forever. If interest rates come down, you can simply refinance to a lower rate. Many lenders even offer streamlined refinance programs where it will cost you very little to do this.

Another option to consider is an adjustable-rate mortgage or ARM. I personally am not a fan of these, but they do have a valuable place under the right circumstances. This is something that I would advise being very thorough in reviewing all aspects with your lender and comparing all the positive and negative possibilities. Like I stated before, I am not a fan of the adjustable-rate mortgage programs, but it is an option that is available.

Here is an option that won’t work for everyone because some people don’t have a lot of money saved up for a down payment. If you do have a sizable amount saved up like 20 percent of the purchase price to use as a down payment, then you might want to consider private financing. This can be a creative way to get you into the property with minimal costs and not as many hoops to jump through. The rates can be very competitive and occasionally better than the banks. Generally, these are based on a 30-year term, but they balloon in three to five years which means you need to refinance in that timeframe and pay the balance off.

With all of that being said, buyers or sellers both should do one thing the same way. That is to find an experienced Realtor to work with to assist you through the process. In this type of market creativity and experience can be the difference in achieving your real estate goals or being unsuccessful. <

This article was written by Matthew Trudel, Broker and Owner of Five Star Realty, Windham, 207-939-6971.