Okay, home buyers, tough love for you here today.
First, you told me that the housing market was too heated and it was too hard to get into a house. You couldn’t buy anything then. You’re waiting for the market to cool down. Now the market has cooled down and you’re telling me interest rates are too high and now you still can’t get into anything.
This is a really important time for you to think about what you want to be doing. I have been listening to so many podcasts, reading articles. We’re at this point of flux, and we are potentially at a point where people will be permanently priced out of the housing market. We’re seeing a lot of inflation. We’re seeing things changing.
Don’t Get Priced Out Of Home Ownership
I don’t want you to experience this phenomenon: If you don’t get in now, you may never get in. People have been priced out of the housing market for generations and become long-term, permanent rents. Will that be you? Or can you find the way to take the leap and enter the market?
Can You “Save” Your Way Into Your First Home?
What I find is that when people don’t have enough money to get into the house, they try to save, save more for the down payment and that type of a thing, wait until they make more money and they’re doing their thing, chugging along.
But the Seattle housing market tends to go boom, boom, boom, up and up really fast. And it’s easy to feel like just the market is running away from you and you’ll never be able to afford something. So what I always encourage people is to get into something, get your foot in the door, even if it’s a smaller house than you like, a condo, further away. So that when the market makes these big jumps, you’re along for the ride, right?
You’re not trying to save your way into something that is a runaway horse and you’re here jogging as fast as you can. You’re not going to be able to keep up.
The Market Cooling May Present The Buying Opportunity You’ve Been Waiting For
So we have just seen the market come down quite a bit. I sent out to a couple of you guys, I emailed an article from The Seattle Times. If you want more information about that, you can get it here.
But short version is The Seattle Times says the Seattle market is the fastest cooling market in the country.
Now what does Warren Buffet tell us? He basically tells us when there’s blood in the streets and everybody’s afraid, that’s the time when you need to take action.
So while others are taking a pause and saying “let’s wait and see,” it may be a good time for you to act. If you’re interested in certain neighborhoods, I’m happy to drill this down for you with my software and subscriptions, so we can collect data on the areas and zip codes you’re most interested in.
We always have our story. We are pumped fear into us by the news 24/7. The question is: Are you going to let that fear hold you back?
What Are Real Estate Investors Saying?
But the investors I am familiar with are still buying.
They are saying they’re looking at this as a buying window, as an opportunity that may not come around again for a long time. A cooling market is what we “said” we wanted. Are we ready to ACT now that it’s here?
So with prices having gone down 10% or 20% in some areas in King County, this may be a buying opportunity for you.
And if we do see interest rates come down, which everybody seems to be waiting for, what do you think will happen in terms of the prices?
If interest rates fall again, home price will bounce right back up and you’ll be in the same situation with an overheated marketplace – because the demand is still there.
There are buyers out there who want to buy homes.
Seattle continues to be a strong market. But the key is this “affordability factor.” Managing your monthly payment can be a challenge.
So what I would suggest is that you use this Fall as a buying opportunity to at least look around, to at least educate yourself, and get to know what’s out there so you’ll be ready if we start to see interest rates shifting lower.
Where Are Interest Rates Going?
The Fed has one more planned rate hike this year.
And the Fed has said they’re going to keep increasing the rate until we have inflation under control.
But when that happens, we’re just going to see the house prices bounce back again. So waiting for that eventuality may not be the smartest move.
What I would suggest is looking NOW at today’s market as an opportunity to get into a home with a lower price. A lower purchase price today, means a higher profit when you sell your home down the road.
Yes, your interest rate may still be high, but there are mortgage programs that can address that.
If we can’t get the interest rate under control and interest rates go up, then you’ll be glad you got in and locked in your rate now. And if interest keeps going up and you act now, then you won’t have been permanently priced out of the market.
Alternatively, if interest rates do go back down, you can always refinance in a year or two into a lower rate.
The good news is that the home sellers are here to help you, along with the mortgage brokers. There are many options and ways to get into a lower-priecd mortgage now.
What Mortgage Programs Are Available To Help Buyers Who May Be Facing Affordability Challenges?
Let’s look at the mortgage programs many lenders are promoting now to help make it easier for you to get into your house.
1) You can have an interest-only mortgage where instead of dividing your payment between principal and interest, you’re only paying interest.
2) You can have a 40-year instead of a 30-year amortization, meaning the payments are stretched out over a longer period of time.
3) You can do an adjustable rate mortgage, which gives you a lower interest rate for the first 3, 5, 7, or 10 years, whatever you decide. And at that point, after that, the interest rate is going to adjust to whatever the going rate at the time would be.
This is a really popular option in a lot of other countries, and especially if you know, “Hey, I’m a Medical Resident. I’m only going to live here for the next five years. And then when I finish my residency, I’m most likely going to move and get another job somewhere else,” or whatever the case may be, if you know that you’re not planning to live in the house forever. Most people only live in their house on average seven years. A 30-year mortgage may not make the most sense. If you are concerned about the risk of the mortgage adjusting, here’s another strategy you can take.
4) You can buy down the interest rate. How does this interest rate buy down work? You get a fixed-rate 30-year loan and you can buy down the interest rate to keep your payments low the first couple of years.
So for the first, let’s say your interest rate was 6% on this loan, you can pay a fee upfront. And a lot of times, buyers, you have some negotiating room and you can get the seller to pay this fee for you as part of your closing costs. I’ve seen sellers offering this now; it’s a whole new world with the buyers having a little bit more control and buying power. Anyway, they pay a fee, you or them pay a fee upfront, and they will reduce the interest rate by 2% the first year and 1% the second year. So instead of 6%, your interest rate is only 4% in year one, because you have a 4% mortgage for the first year. And it bumps up, you have a 5% mortgage for the second year. And then it bumps up and you have your regular 6% mortgage going forward.
That gives you a little more time to ease into the higher budget.
During these first few years of home ownership, you’ll probably have some cost of living increases in your paycheck from work. You can downsize some of the other things that you need to pay for, like paying off your car, student debt, or credit cards, or reducing your spending in order to make a little extra room in your budget for your house payment. This can have a much better ROI than saving for 2 more years and waiting to buy.
And it is really important. People who own real estate have generational wealth-building opportunities. They are not living paycheck to paycheck. They just statistically have more wealth. And for most people, their home equity is a large part of their wealth. Here in the Seattle market, we have so much money within our home equity, the real estate is so expensive, that if you can get in and hang on, you should do well over time.
If you can get your foot in the door and hold on for the ride, chances are you’re going to end up doing very well 10, 20, 30 years down the road.
Remember, not everybody buys for investment purposes. Although the finances are always a big deal here in Seattle because our real estate is so expensive, most people buy and sell for personal reasons, like getting married, having kids, moving for work, or downsizing.
I like the old investor saying, “Don’t wait to by real estate, buy real estate and wait. If you can just get in there and hold on, instead of looking at these short-term blips and bloops on prices and inflation, look at the big picture and evaluate where you’re going to be 10, 20, or 30 years from now.
If you need help figuring this out or have additional questions, you can contact me, Emily Cressey with HomeSmart Real Estate.
As always, I’m here to help. I’m only an email away, so shoot me your questions and I will be sure to answer them.
