Here’s How to Save Them
High mortgage rates are the buzz in the real estate market for 2024. With rates now over 7.5%, many buyers are hesitating or getting out of the market altogether. Freddie Mac reports these are some of the highest rates in more than 20 years.
This has made home affordability a huge challenge. The $400,000 house, now hundreds more per month compared to just two years ago, scares buyers who are also holding off until the right deals come forward. This has you-the realtor, stuck right in the middle.
Explain the concerns of the buyers and come up with smart solutions for keeping deals alive for people to proceed with confidence.
Why are mortgage rates so high this year 2024?
Mortgage rates as of December 2024 jumped to nearly 6.84% for 30-year fixed-rate loans, their largest increase since they fell to the low point of 6.01% in mid-September.
The following factors are contributing greatly to the upward trend:
- The Federal Reserve reduced the federal funds rate from 4.5 percent to 4.7 percent due to inflation. The mortgage rates, however, were not a direct consequence of the federal fund cuts.
- Persistent inflation pressures had driven up the yields on bonds, causing mortgage rates to rise.
- Employment data, however, was healthy to hint at inflation and most likely the upward trend in mortgage rates.
- There has been quite some action lately between mortgage rates and 10-year treasury yields, which have nearly inversely increased with recent hikes helping push up mortgage rates.
- As investor sentiment weakens, mortgage-backed securities are no longer in demand, and mortgage rates rise.
- Such uncertainty-causing factors tend to drive the risk premium and hence mortgage rates: international tensions and economic vagaries.
- Global supply chain disruptions lead to inflationary pressures due to higher mortgage interest rates as well.
How Can I Help Clients Afford a Home During Interest Rate Hikes?
Rising interest rates can make homeownership unaffordable for many buyers, but strategies are available to help your clients manage the costs. One very effective option is an adjustable-rate mortgage that offers a lower rate than a fixed-rate loan for the initial period. It can be ideal for the buyer who plans to refinance or sell before the rate adjusts, giving them enough time to build equity without the burden of higher monthly payments.
Another way is through mortgage rate buydowns in which sellers or builders pay some of the buyer’s loan costs upfront to decrease the monthly payments. It makes a huge difference for the first-time buyer who needs manageable payments on the front end. Furthermore, down payment assistance programs, usually from state or local governments, help a buyer with grants or low-interest loans to pay part of the upfront cost of a home, which lessens the burden of the financial impact of buying a home.
With less-expansive budgets, there’s room for downsizing and exploring more modest houses or finding less expensive neighborhoods. Downsizing or making small sacrifices on the location will often make all the difference when it comes to affordability without sacrificing their dream of home ownership. Finally, encourage your clients that they can always refinance their mortgage once interest rates drop and allow them to get a better deal over the life of their loan.
By centering on these strategies, you would help your clients stand on their own confidently making their way through rising interest rates challenges.
Is It Better to Rent or Buy with High Mortgage Rates?
This depends mostly on individual circumstances as well as the conditions in the market. With the pros and cons, clearly setting out the financial and lifestyle implications can help your clients get the best.
When Renting Makes Sense?
With mortgage rates over 7%, a family may find that their monthly mortgage payments for a mid priced home ($425,000) are steeper in many areas than it would be to rent. To some, it seems at first more cost-effective to rent. “Renting gives customers more flexibility in their lifestyles in that they are not held out to a property as often,” she says. With home prices still somewhat high, renting provides a protection against market downturns, mainly if home values decline while the interest rates remain high.
When Buying Is the Better Option?
Unlike renting, buying a home allows one to build equity over time. A portion of every mortgage payment goes directly toward owning the property, thus creating long-term financial security. Homeownership also comes with tax deductions on mortgage interest and property taxes that can equal out the higher monthly payments resulting from high interest. While rent may rise annually, a fixed-rate mortgage does lock in monthly payments-a certainty for one’s cash flow.
When rates are lower, buyers can refinance their mortgage and reduce monthly payments and secure better terms in the long run.
- Encourage clients to use a rent-vs-buy calculator to determine their position. Key factors include:
- Current rent costs compared to potential mortgage payments.
- Upfront costs or down payments and closing costs versus rental deposits.
- Length of time they plan to stay in the property – buying typically becomes cost-effective if they plan to stay 5+ years.
What can sellers do to attract buyers in a high-rate market?
In a market where the mortgage rate is above 7%, buyers are cautious, thus making it difficult for a seller to close a sale. However, with adjustment and smart incentives, selling can still attract serious bidders and secure favorable terms. Here’s how:
Reasonable Price
Pricing is very important in a competitive market. A competitive listing price that would represent recent comparable sales and the current market conditions would require sellers to collaborate with agents. Pricing slightly below the market value can provoke more interest and possibly cause multiple offers.
Highlight Energy Efficiency
Long-term costs are a big concern for buyers, so energy-efficient features can be a huge draw. Buying a house with solar panels, smart thermostats, better insulation, or energy-efficient windows will save you money.
Reward them to pay closing costs
To pay part of the closing costs, which will help buyers offset part of their upfront expenses. This would lessen the financial burden for buyers already stretched by higher monthly payments due to elevated mortgage rates.
Market and Stag the Home Properly
An elegantly staged home leaves an impression on visitors. Invest in professional staging for your home to highlight the best features of the property and photograph well for online listings. Combine this with a robust digital marketing strategy, including virtual tours and targeted ads, for wider distribution.
At VLead Services, we understand how tough it can be to sell homes in a high-rate market. That’s why we give you high-quality, pre-screened buyer leads so that you connect with serious prospects ready to act.
Some of the solutions we offer under this customization include:
- Exclusive Leads: They will never compete with other agents over the same buyers.
- Detailed Market Analysis: Understand the buyer behavior and market trends to position your listings correctly.
- Marketing Support: We provide them with the exposure they need to cut through in this competitive market.
You can use the V Leads Services in which tools and connections can help attract buyers, thus closing deals faster. If you are new in the market or already know your way through it, we can guide you through its movements.
