As November opens we find ourselves in a very interesting spot in the Real Estate & Mortgage industry. Business is a bit slower than it has been in the previous few fall seasons. However, it’s a bit busier than it has been over the last couple of months. Even more than normal, we exist in interesting times. But if you are kicking the tires on the purchase of a home, it’s a pretty good time to get a deal.
Rates appear to have stopped rising for now. Who knows how long that will last. The fact is that the Federal Reserve, in addition to raising the overnight rate that they control has also stopped supporting the market for Mortgage Backed Securities (MBS). When, as a buyer, they left the market on October 1 we almost immediately saw a bump of .50% in interest rates. So an average rate moved from 4.50% to 5.00%, for example. This has moderated a bit in the last few weeks though. Buyers are cautious about buying at these higher payments that are the result of higher rates.
Home prices appear to be topping out a bit as well. In 2017 we had, in most places around Chicago, a 5-6% increase in home prices. Add to that the early 2018 numbers had us on pace for another 4-5% or so increase. As rates have risen, price gains have slowed. We have yet to see any real pullback in home prices. For now, the market remains healthy, but sellers are reluctant to drop their prices so far.
There is a stalemate in the market, buyers and sellers are both right. Prices are up and steady, so sellers point to comparable properties to justify holding the line on price. Buyers point to rising rates and payments to try justify lower prices. The result is a full fledged standoff.
Let me argue quickly for the Seller Funded Buydown. This strategy uses the discounting of the buyers interest rate, BY THE SELLER, to reduce the monthly payment. It works exceptionally well because the impact of a buydown on the monthly payment is between 2.5 and 3x to 1in terms of impact. So instead of a price cut that saves $100 per month you can fund an interest rate cut for the same money that saves the buyer $250 per month, forever!
More details will follow on this strategy over the next several weeks. It will be a powerful way to get business closed over the next few months. If you want details now, call, TXT, email, carrier pigeon. Otherwise, watch this space for more information.
