Rates Over 7%—How to Still Buy Your Home

Just a few months ago, a regular salaried employee loan’s interest rate was under 3%—now it is surpassing 7%!

It seems the market is coming to a standstill, price reductions are everywhere and all of sudden we are now in a buyer’s market.

When I began doing loans way back in 2006, a good rate was 7.5%, this was considered to be very low; way before my time rates were in the 18%+ category.

How did people buy anything at 18% that still made sense to them? A mortgage loan is simply the leveraging of a payment, for example:

If you can afford a payment of $3,500 per month (an average rental amount in Southern California), assuming a 20% down payment, this is what you could buy:

At an interest rate of 3% you could buy a property sold for $770,000 At an interest rate of 4% you could buy a property sold for $700,000 At an interest rate of 5% you could buy a property sold for $640,000 At an interest rate of 6% you could buy a property sold for $585,000 At an interest rate of 7% you could buy a property sold for $540,000 At an interest rate of 8% you could buy a property sold for $495,000

Notice that as rates go lower, the property price buyers can afford goes up. As rates go higher, affordable property prices go down. However, their monthly payment remains the same!

The $770,000 property has the same monthly payment as the $495,000 property! The difference is in the “price of money” (i.e. the interest rate).

So what you can do is simply place a lower bid on the property you want.

Even though the general market usually “lags behind” and it may take a while before ALL houses in an area are offered at lower prices, there are always sellers who need to sell right now for various reasons. Some sellers are willing to accept lower (but reasonable) offers because they can see the writing on the wall, and they NEED to sell right now for some financial reason. For example, fix-and-flippers who have taken out a loan to do a fixer-upper often need to sell because their loan is going to mature. A professional fix-and-flipper knows how to anticipate market trends and they are not going to want to wait until the market goes EVEN LOWER before they sell; they will simply sell now and take a less profit than they had originally hoped to make.

Yes, it is going to take work, many mouse clicks since today offers are digital, but so what! Find a Realtor who is OK with anticipating the trend, someone who is not shy

and who knows his local market, and can help you seek out sellers who need to sell now.

It is important to remember that the prices listed on real estate websites are just what the seller is offering the house at; the “actual” price of each house is only established when it sells.

Instead of sitting by the sidelines and “wait” for the majority of Sellers to adjust to the new market environment, do the exact opposite and find the sellers who can anticipate the market and need to make a deal now!

Now, November & December (when the real estate market traditionally slows) is the time to get busy and put lots of offers! Don’t worry about “hurting” the Seller’s feelings (they will be more hurt if their house doesn’t sell at all). Think about the great deal you can get because you took action ahead of the curve. Happy house hunting!