Between the news, social feeds, and our own work circles, it seems we simply can’t escape the mortgage rate discussion. What makes it especially frustrating is that recent rate hikes are not really an organic economic reaction, they’re being put in place to curb a surging economy.
Historically, good housing markets follow strong job reports, and that’s all we’ve had lately. The Bureau of Labor Statistics reports that the unemployment rate, while up slightly, remains below four percent, and that more than 260,000 jobs were added in October. Numbers traditionally considered national accomplishments.
Nevertheless, here we are, looking at mortgage rates above six percent, according to BankRate.com, and more people deciding to sit out the current market with the hope that rates will come back to where they were during the pandemic.
Well, let’s talk about that.
Rates fell in the grip of covid because no one was spending money for a few months, and no one knew where the economy was heading. Over time, low rates stimulate spending, so the Fed had little choice. That is partly why the real estate market went off the rails, in a good way.
Of course, people making bold lifestyle choices didn’t hurt. Compounding the housing craze was pent up consumer demand, ranging from travel to housing improvements to basic retail goods, colliding with long-standing supply chain challenges that couldn’t be cured with a vaccine. The result? A rate of inflation not seen for decades and consequently, the need to increase interest rates to slow spending. The government is pumping the brakes on an economy that still wants to plow forward, and now, amidst all that smoke and seared rubber stands the American homeowner, unable of which way to turn.
Thankfully, we have some experience in these conditions.
First, know that it’s always a good time to buy a home. Now is even better. With sellers waiting longer to hear offers and more buyers worried about rates, the timing is ideal for the savvy buyer—The Abbey Collection clients— to move in.
Remember that you can always refinance a mortgage, and that historically speaking, six percent remains plenty attractive. However, you can always do a temporary buy-down of your rate, and there’s a creative way to achieve it.
A “temporary buy-down” is a process that allows buyers to pay upfront for a lower rate for a specific amount of time.
A “2-1” buy-down reduces the rate by two points for the first year of ownership, and one point for the second year. But, it’s not always easy if you don’t have the extra cash after paying your down payment.
Our friend Christine Atkinson at Columbine Mortgage recently shared with us how to do it.
When offering on a home, the buyer can include an above-market price, say, $20k above ask. But, the offer will include a seller concession for that above-ask amount. The offer on a $600k home, for example, would be $620k with a $20k concession at closing.
Using this method, the seller gets their number and the $20k concession provides the cash needed to finance the buy-down for the first two years. Know too, that while the rate is “adjusting,” it’s not an adjustable rate mortgage. Thus, you can plan for year three when the rate will finalize at its 30-year status.
Granted, every unique financing model requires buyer and seller parties to understand how it works, and most importantly, agents on each end that can navigate the process. People like us, in other words.
If this sounds like something that could work for you, give us a call. Let us help.
And cheer up!