We believe there is too much unhelpful attention right now on the negative aspects of the current real estate market, the economy, and higher interest rates, etc. Now, we appreciate all of these factors and can empathize, of course, but it’s time for some perspective.
“Real Estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world”
Franklin D. Roosevelt
Historical context
Freddie Mac has been tracking mortgage interest rates since 1971.
Current interest rates are higher than we have enjoyed in recent years. But, they are still historically low. We understand the issue of relativity, 3% is a lot lower than 6% (half as low to be exact) but 6% ain’t bad. When Freddie Mac started tracking interest rates in 1971, it was about 7.5%. At the start of the 90s interest rates went over 10%.
Long-play investment
Real estate is mostly a long-play investment. If your grandparents were homeowners, they probably bought their homes when they were young, lived there most of their adult lives, paid it off, and when they retired it became part of their wealth. It wasn’t until the last couple of decades that people even thought real estate could produce generous returns in a very short amount of time (example: flipping).
For the last decade, we have enjoyed a market that was on fire. In fact, it’s really been too hot to be healthy. Those of us who have been in real estate long enough to understand and anticipate ups and downs are not at all surprised by higher interest rates and a lag in the market. But here’s the thing: real estate never stops, it is always a solid and smart investment. The opportunity just shifts form. See, perspective.
Where one door closes a window opens
Let’s talk about the opportunities. Whether you are a cash buyer or a first time home buyer there is good news in the real estate market.
First time home buyers
It isn’t a bad time at all to buy. Everyone wants you and they’re putting their money where their mouths are.
- Government: The Biden administration announced in February it would reduce mortgage insurance for Federal Housing Administration, or FHA loans. FHA loans are used primarily to help people buy their first home and income limits will apply.
- Lenders: They need you now more than ever and are getting as competitive with interest rates. We are approached every day by lenders who are getting more creative and generous. Lenders are beginning to offer programs with low or no money down with no private mortgage insurance. We don’t like to mention one lender over another, but call your 5 Points Real Estate broker and they will know who to send you to.
- Sellers: They are more willing to negotiate. We are even seeing some offers to pay for closing costs. This is a big change from years past when sellers were inundated with so many offers they could pick their price.
So, with a break on the down payment, PMI and room to negotiate we are finding it’s a really good time to buy for first timers.
Cash buyers
Now is your time. In the last few decades, cash offers weren’t really king. Home values were up and lenders supported the trend, so buyers were free to go way over asking price and win the bid. Remember, sellers get paid no matter what. So, they have been willing to go through any hassles that come with lenders to get the highest price.
But, cash is back on top now. Interest rates are higher so buyers who need a loan have less to spend on the actual home price. Your cash offer may go further with sellers who are willing to negotiate.
Investors
There was a time not too long ago when trying to renovate a house took way too long. The good news is supply chains have opened back up, inflation has slowed and trade workers are available. So you won’t have to wait a year for appliances or for a contractor to install them. And we all know time is money in real estate.
Buy and hold
This tried and true investment strategy works for nearly everyone: purchasing a home with the intention of holding on to it for a long period of time. Typically, this means being a landlord until you intend to sell. The name of the game is short term income and long term gain. Can’t beat it. Sure, you might pay a higher interest rate today, but you’ll be able to make up the difference with the rental rate you charge. Rent is at an all-time high and that doesn’t seem to be coming down any time soon. In addition, that asset is just sitting there, waiting for the next market shift so you can sell at the best possible time.
A note to sellers
Please sell, you won’t regret it. Buyers are still out there and inventory is lower than ever. If you have a house that is in solid condition and you ask a fair price you will get it.
We are the experts when it comes to finding opportunities for any type of buyer or seller. We know where they are and how to access them. It’s a great time to be in real estate, just ask us.
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