The (Temporarily) Lost Buyer/Seller
Credit to Leonard Steinberg
There is a wave of people that is reluctant to sell now and buy a new property at a notably higher rate than they did before. These homeowners bought when rates were really low - or refinanced at a low rate - when rates dropped to historical lows. It could take a while for them to either feel comfortable with the essential need to move, regardless of rates, or hopefully wait for a moment when rates come down again, maybe not to the super-low levels that spoiled us all a little bit, but to more 'realistic' levels.
This group has a few options at their disposal:
- Wait for rates to come down to more realistic levels, hoping the FED has raised rates too far, too fast.
- Sell and buy at a higher rate with the hopes of refinancing later when/if rates come down.
- If they are selling a high priced home to buy a smaller, lower priced home - or a home in a cheaper area - they may not need as much - or any -financing.
- UP-sizing now can deliver a healthy balance sheet: If you sell a $1 million home for a 10% discount, you experience a $100k loss. If you are buying a $3 million larger home with a 10% discount, that's a $300k 'savings' and the $200k difference could cover the costs of a higher rate for many, many months or even years. Or refinance when rates are dropped when a recession hits (they usually happen every 7-10 years)
- Simply acknowledge new realities and live within them, possibly lowering a budget if possible. Death, divorce, career-moves, births, marriages, etc don't stop when recessions or slowdowns hit.....or when rates rise.
- Buy your new home with the higher interest rate and rent it out, planning to move into it in 2 years when hopefully rates come down. You can deduct all the mortgage interest from an investment property.....
- If you have large cash reserves, buy your new home with all/mostly cash and then finance later when/if rates come down. If cash earns about 3% in a savings account, saving 3-4% compared to a mortgage may be a wise investment and in many areas home prices are stable and still rising.
The key to all of this is: everyone's circumstances and finances are different. We as realtors, identify options for clients' consideration to help them formulate intelligent strategies. Waiting and seeing is a strategy too, but only if you ignore the fact that we are ALL running out of time.