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One of the most common questions we currently receive really sets the stage for whether we add value to potential clients or not. The question is this, “Is now a good time to buy a house?” Our ability to provide fact-based information, so potential buyers can make the best decision for themselves, is critical to our success in the current market environment.
David Childers, President of Keeping Current Matters says, “an agent’s job is to educate the potential buyers and to provide them with the best possible information available, not to convince them to do something they don’t want to do.” He says there are two main questions shaping buyer’s opinions that we need to ask. The two questions are:
What do you believe about interest rates?
and
What do you believe about real estate prices?
The following includes answers to these questions and how to provide information in a professional, organized way that leads to value-driven, client relationships, not just today, but for a lifetime.
What do you believe about interest rates?
“Although much of the messaging potential buyers are hearing may be sensationalized, the best thing agents can do is to provide factual information for their clients in regard to interest rates,” Childers said. He stated the first step is to define reality.
As the chart below shows, mortgage rates have risen from 3.2 percent at the beginning of January this year, to nearly 7 percent at the end of October. This represents the fastest rise in interest rates in 50 years.
“When sitting with someone I want to show them this to acknowledge the fact that this change has slowed the number of home sales. This is one of the main factors leading people to ask whether they should buy now or wait. This is the point where we can provide our relevant, market perspective based on fact, not based on what someone said, or what they heard, but based on what experts are saying about interest rates,” Childers explained.
The next step is to provide information on what experts are saying about the future of rates like the following quote from Mark Fleming, Chief Economist with First American.
“Per this quote, rates are expected to continue to move higher in the short term, why is that? It is all about inflation right now. It’s the Fed’s fight against inflation. The Fed doesn’t control mortgage rates, they can only hope to influence them through fed policy. That policy of fighting inflation through raising the fed funds rate has been a catalyst for the higher mortgage rates we’ve seen.”
“As the Fed continues to raise the fed funds rate, we will continue to hear experts predict that these actions will lead to the likelihood of recession in the next twelve months, as noted by this chart polling economists conducted by the Wall Street Journal,” Childers stated.
This leads to the question, how have recessions affected mortgage interest rates in the past? This is a slide Childers shared that shows that mortgage rates have gone down every time over the last six recessions dating back to 1980.
“The question is timing, and no one has a crystal ball. But the logical path to helping potential buyers decide if now is the right time for them to buy is to be able to provide a path to an understanding of where we are with rates and where the facts point that we might be headed,” said Childers.
The fact that rates are predicted to drift higher in the near term provides potential buyers the opportunity to lock in their housing expense now. The process of buying now hedges against rates, hence monthly mortgage payments going higher, and it provides an opportunity, through refinancing, to be able to lower costs, should rates come down.
Ultimately, they will decide if now is the right time for them to buy or not. But, with good information, people make good decisions for themselves. Provide the best information possible, and you will create a client relationship for life.
What do you believe about real estate prices?
The next big question is what do you believe about prices? The biggest challenge facing buyer sentiment is the headlines that can, at times, be exaggerated to capture attention.
This can lead to a distorted view of what is accurately happening in the market. Finding what the experts are saying about the market and future predictions regarding home prices is another way to bring a relevant market perspective based on facts to your potential clients.
The chart below shares the average home price forecasts for 2023 from the Mortgage Bankers Association, the Home Price Expectancy Survey, the National Association of Realtors, Fannie Mae, and Ivy Zelman.
The highest forecast for 2023 price appreciation of the five being from the Mortgage Bankers Association for 2.8 percent and the highest forecast for depreciation being from Ivy Zelman being 4 percent. The average of these five forecasts is for a .2 percent rise, basically flat, in 2023.
“While every market is different, based on these predictions, most markets are predicted to be slightly up or slightly down regarding average prices in the coming year. Although there are some predictions for depreciation next year, and I don’t believe we should shy away from that, most predictions then call for appreciation in 2024,” Childers stated.
The conversation then should lead to the alternative. If you decide not to buy, then you will need to rent. This chart shows the rise in median asking rent since 1988.
According to Childers, “The true crisis in real estate today is the rising rental rates. As an agent your ability to know and share how much a rental will cost monthly versus a mortgage payment in your local market is extremely valuable information for potential buyers.”
While a fixed-rate mortgage locks in your monthly housing expense, rental rates have historically risen, and a renter today can reasonably anticipate higher monthly costs in the future. This perspective provides another consideration potential buyers may not have considered.
Every market is different, so understanding the factors affecting potential home price increases or decreases in your local market is needed. But, by providing the information above, you will have given your potential buyers the opportunity to make their decision based on factual information from some of the most knowledgeable professionals and organizations in the business.
Although we usually focus on the financial aspects of buying a home, there are also decisions on homeownership that are not solely based on financial decisions. This leads to the next set of considerations.
Why are you considering buying a home?
“The decision to buy a home is extremely personal and mostly driven by life events like marriage, a new job, a new baby, aging parents moving in, or whatever the case might be, these are often the factors that drive the decision to buy a home. Once we understand why they are considering buying a home, oftentimes not fully motivated by pricing or the expense, then we are able to provide them with the information needed to help them make the best decision.
Homeownership has always been a foundational component of the American dream. It provides a sense of security and control that renting cannot provide. These non-financial factors affecting the desire of a potential home buyer are often overlooked,” Childers noted.
Until you fully understand their motivation to buy, it will be difficult to be the agent they need and deserve.
So, is now a good time to buy a home?
The answer to this question is different for every person or family considering buying. But the need for agents to bring value through helping their clients make that decision is more important now than ever before. Now is the time to educate yourself and become the most knowledgeable agent in your market. Now is the time when your clients need your professionalism. They need you to be the best agent you can be.
Childers closed with, “One thing that came out of the pandemic is that people want to own a home. They want their spot for themselves and their family that they can call their own. Never forget that homeownership is so much more than units and prices, at the end of the day, it’s about the American dream. And by the way, most people in this country that have been able to build wealth have done so through homeownership. Providing the best information possible and guiding them toward the best decision for them and their family will never be forgotten.”
