Rate hikes, mortgage interest rates and the impact on the housing market have been all over the news for the last couple of months. With dramatic and conflicting headlines, many buyers and sellers are confused about how all this will all impact their plans. Fortunately, there are opportunities available for the right situations and we have plenty of experience and data behind us to help guide decisions on timing and pricing.
Some food for thought for three specific scenarios that are coming up regularly:
Q: We're outgrowing our space but are locked into a low mortgage rate. We aren't comfortable affording a larger home with both a higher rate and higher purchase price. How can we purchase a home that fits our current needs?
A: We often talk with families who are struggling to find something larger in town that fits their budget when both values and prices having increased. If you purchased when prices were lower and are locked into a mortgage rate in the 2s it can be hard to imagine trading that for one in the 6s with a higher balance.
The good news is that there are probably two strengths here: equity and a low rate. You may want to consider keeping your current home - and mortgage - as a rental property. With low payments and strong rental demand, it's likely that it will generate some income each month. Be sure to double check your estimates with your agent or broker.
If cash from the first house is needed to fund the next purchase, a HELOC may enable you to access additional equity.
More good news here is that there is less competition for buyers than there was a few months ago so you may be able to negotiate the purchase price some and will be more likely to get an offer accepted that includes contingencies.
Q: I'm a first time buyer and want to make a purchase before my rent increases again, but interest rates are pricing me out of the market. What should I do?
A: The saying "marry the house, date the rate" applies here, but it's advice that needs to be taken with caution. The idea is that you can never change the purchase price but a rate can be refinanced in the future. If you're certain that you'll be able to sell if necessary within the next 5-10 years, purchasing a property, espeically one where you're able to negotiate a bit on price, and using an adjustable rate mortgage might be a good option. It's important here to understand all the terms of your mortgage and feel confident that if your payments do increase after the initial period that you'll be comfortable with the new amount or that you'll be in a position where you can sell or refinance.
Another great option for first time buyers is house hacking. More about that in our last blog post on investing strategies. Rental income from another unit can go a long way towards making a purchase affordable that might not be otherwise. The bonus here is that it will probably allow you to build equity faster as well.
Q: We spent more time preparing to sell than we expected and are worried we missed the peak of the market. Should we still list our home?
A: The short answer is, it depends. The frenzy of multiple offers within the first hours on the market has died down but that doesn't necessarily mean it's not still a good time to sell. Inventory is still quite low and there are still buyers who need to move. And even though prices are down slightly from peaks in late spring, they're still higher than they were at this time last year.
If you have plenty of time and don't need the certainty of a sale in the next couple of months, you may feel comfortable waiting to see what the spring market brings. There is some risk in this since we never know for sure what will happen, and if rates continue to rise there could be more downward pressure on prices. That said, spring almost always sees more buyer demand than late fall and winter so it's possible that waiting will have its rewards.
Timing the market is nearly impossible though and always involves a bit of luck so don't beat yourself up for possibly missing the tippy top of the market. Besides, if you were spending that time improving your home it should be even more appealing to buyers than it would have been a few months back.
There's no one-size-fits-all strategy and we're in a market that's fluctuating so it's as important as ever to consult with your agent/broker and lender on what strategies will help you reach your goals. To stay on top of the market, make sure to follow us on social for weekly updates specific to Greater Boston.