Rising Rates, Lower Prices.
Mortgage rates have been climbing over the past few months. And higher mortgage rates mean lower purchasing power for buyers. Whatever you may think of the Fed and its mission to control recent inflation, raising interest rates is the solution for high inflation rates. It allows more returns in safer investments keeping the currency in place rather than chasing a return. And for housing, it pushes down pricing. For every one percentage point that a mortgage interest rate rises, it lowers a buyer’s purchasing power by 10%. After all, that buyer has a budget which is based on a monthly payment. Higher interest eats into the pre-approval price to keep the same monthly payment.
Many homeowners are now finding themselves on the fence about selling because buying on the other side means buying less house for their money. If you bought or refinanced during the ultra-low rates experienced in the past decade, why would you want to trade in a 3.5% mortgage for a 6%+ right? Well, because life happens. Or because you’ve always wanted out of this state and it’s ridiculous property taxes. And as the market has already begun to cool off a bit, the better question is “Why wouldn’t you want to take that equity now?”. And speaking of property taxes, look at places like Florida or Tennessee and calculate the far lower property taxes and zero state income tax. In most cases they’ll make up for or beat the higher interest rate. But not if you keep holding on and lose that equity…
Pop Goes the Housing Market?
“Real Estate Bubble” is something we all heard about back in 2006-2007 when people were making terrible decisions encouraged by mortgage brokers and bankers that would approve anyone for a big loan and package it up and sell it off. They made out on the loan origination points and passed the terrible investment elsewhere. The problem? It’s been over 15 years and people have short memories. Some of these low down payment or zero down payment deals are coming back. Even outside commercial banking. California has recently started using taxpayer funds to put 20% down with 0% interest for homebuyers. Think that will drive prices up? According to Mike Maloney, best selling author and business owner, this real estate bubble is destined for a collapse. Mike correctly called the last bubble burst in 2005 and sees the same thing building today.
https://goldsilver.com/blog/real-estate-bubble-destined-to-pop
Mike Maloney’s Predictions In 2005 – Come True Soon After
So Who Do I Sell To?
So risk-reward, if you’re looking to sell anytime soon, 2023 could be your best shot at a cash out before the market finally hits that iceberg and you’re stuck for years. Even if you end up with a higher interest rate, what if you can make up for that in lower property taxes, lower income taxes, or a better quality of life? When it’s time to sell it’s time to sell.
But wait, buyers for your home don’t want to take out 6.5% mortgages either. And what if the Fed goes full Paul Volcker from the 80s to get a hold of this inflation and we see rates go to 8%, 10%, 12%? Regardless of a crash being predictable one thing is guaranteed – either we’ll have high inflation for a long, long time, or rates need to go up further.
This is where a professional cash buyer like JCH properties can help big time. JCH Properties can buy for cash without worrying about a lending rate. We may hold longer term by renting it out and re-selling later. We also have experience working with homeowners in a variety of situations, so we can often work with you to find a solution that meets your needs. We’re investors who care a lot about Joliet residents, our neighbors, and like helping people through what seems like a mountain to climb at first.
Give us a call now at 815.267.6563 or fill out the short form over here.