We see it any time interest rates start creeping up: big, bold news headlines declaring that the housing market is headed for trouble. When rates go up, the doom and gloom and articles in the mainstream media spread like wildfire. These factors create a difficult consumer perception that we have to overcome when working with buyers.
But this is where you, as the local real estate expert, have a chance to shine. Armed with the facts, you can make a powerful statement by educating potential buyers and other consumers in your market that the media hype isn’t always the complete story.
Let’s look at some sales numbers on a national level. Sales this past fall were higher than Fall 2012, when interest rates were a whole point lower. Rates began a steady climb in May 2013, and sales and sale prices have both been trending higher than last year. In some markets, prices have recovered exceptionally well—and rising rates haven’t slowed down buying activity.
While it’s true that home sales and prices are seeing smaller gains, those are still signs of a more stabilized housing market. It’s good that housing stays affordable so that buyers with steady incomes can feel more confident about their home-purchasing prospects.
I tend to agree with the idea that rates, which are still at historic lows, won’t impact the market noticeably until they rise significantly higher. Right now, we’re hovering in the range of 4.2 to 4.5 percent for the average 30-year, fixed-rate mortgage.
Rates will go up and they’ll go down; that’s part of the ebb and flow of a typical housing market. It’s up to educated real estate agents like you to set the record straight with buyers on how rate fluctuations—up or down—can influence their purchase decision. They are far from the only factor worth considering.
Housing affordability, which can be affected if rates climb too high, is also tied to target neighborhoods, lender fees, down payment requirements, type of financing and a whole slew of other considerations. More importantly, however, personal finances play a bigger role in determining how much home a buyer can afford. That’s why it’s so important for buyers to speak with a lender early on in the process.
Even if buyers qualify for a loan in their desired price range, it’s up to them to be honest with themselves about the ability to afford a monthly mortgage payment alongside other monthly expenses. A slight rise in rates is unlikely to impact a buyer’s ability to afford a monthly mortgage payment, but a car payment certainly will.
The bottom line is that the media may be quick to publish articles that paint a fearsome picture of the housing market—the minute rates see an uptick. Don’t let your clients fall victim to the belief that slight rate increases are able to seriously derail their buying plans.
Margaret Kelly (CRB) is chief executive officer of RE/MAX, LLC.
For more information, visit www.remax.com.