5.81%. That is the average mortgage rate this week – the highest in 35 years. The quick interest rate increases in the past few months are changing the hot seller’s market created by the covid pandemic. As the Federal Reserve attempts to curb inflation, another 0.75% benchmark interest rate increase is expected at their next meeting on July 26 -27th. What should you be doing to accomplish your real estate goals BEFORE the next rate hike?

HOME BUYER: How Do I Handle The Changing Market?

Compared to earlier in the pandemic where buyers were regularly closing with a interest rate between 2-3%, current mortgage rates may seem high. It can be hard to adjust to a new normal. Below are some key items to consider if you are looking to buy in the shifting market:

What Are Homes Renting for In Your Area? When contemplating whether to buy in the current market, you need to consider the alternative to waiting – renting. Jacksonville is the No. 5 in the nation for rent increases (click here). From 2019 to 2022, rental rates rose 22% in Jacksonville alone. To save effectively for your future, it is recommended rent should not be more than 30% of your monthly income. Mortgage payments stay the same over the course of the 30 year loan (unless you refinance). Whether you rent or buy, you are paying down someone’s mortgage. You need to run the numbers in your area to decide if you want to pay down your mortgage or your landlord’s mortgage.

Keep Historic Interest Rates Into Perspective. It can be hard to think bigger picture when you have seen lower interest rates for so long. As demonstrated by the graph above, the current interest rate is still lower than the historical average of 8%. This change in rate is just a season. Write down the main reasons you plan to buy a home and determine if you want to sideline that goal solely based on interest rates.

Remember You Can Refinance Your Mortgage. The beauty of a mortgage is you can control your monthly housing payment. You do not have to worry about rental rate increases from your landlord once you buy. Mortgage rates don’t have to be forever though. As rates shift, you can refinance your loan and take advantage of future mortgage rate decreases. One of the largest drivers for mortgage activity during the pandemic was actually refinance applications. Millions of homeowners took advantage of the low interest rates to lower their monthly housing payments or pay off debt (click here). Factor in the potential to refinance in the future when considering if you should buy now.

Lock your Interest Rate Before the Next Increase. Now is the time to double down on your house hunt, if you want to buy at the lowest rate possible this year. Despite rising interest rates, home price appreciation is still expected to go up (about 3% next year). Economists agree we are not in a 2008 housing bubble. The market may be shifting, but view it more as a pricing plateau rather than expecting a large pricing drop like in 2008. Before rates go up at the end of July, make sure to find a home that works for you and lock in your rate now.

HOME SELLER: How Do I Handle The Changing Market?

Over the past few years, sellers have been reaping the rewards of this crazy covid market. Despite rising interest rates, inventory is expected to remain low and the market will still favor sellers. However, the aggressive pricing and often one-sided negotiating strategies of the pandemic will likely not lead to a successful sale in the shifting market. Below are some keys things to consider if you plan to sell during this changing market:

Now is the Time to Sell. Time is of the essence during a changing market. Since data on closed sales and pricing is collected 30-60 days afterward, news outlets and appraisers are typically using outdated data. If prices are dipping, we likely will not see it in the data for a few months. The sooner you can get your property on the market, the better chance you have of selling at the highest price. You will benefit on the higher priced sales from the beginning of this year.

Prepare Your Property Well Before Putting It On The Market. During the pandemic, sellers didnt have to put in much effort to get their home sold quickly and for top dollar. I had properties sell in an hour that had holes in the wall or filled with so many boxes buyers could barely tour. Buyers will not overlook these same items like they did during the pandemic. Unique homes, properties with work, or homes in undesirable locations will likely be the most affected by these interest rate hikes. Decluttering, cleaning, and repairing key items will be more important. Make sure to put in the extra effort to wow buyers as they are counting the cost of homeownership more now. Click here to learn about how to prepare your property for sale.

Factor in Rental Rates When Determining Pricing. Buyers are weighing two options – buying versus renting – right now. Make sure you look at both options in your area when determining your list price as well. Rental rates have been rising throughout the pandemic as well, and have reached unaffordable levels for many households. This makes home ownership often more affordable. With rising interest rates though, the line may start to blur. If your list price creates a mortgage payment above the rental rates in the area, you are hurting your chances of selling.

Don’t Give the Property Away. Despite rising interest rates, home price appreciation is still expected to go up (about 3% next year). Economists agree we are not in a 2008 housing bubble. The market may be shifting, but view it more as a pricing plateau rather than expecting a large pricing drop like in 2008. You do not need to approach the sale of your home in a panic due the rising rates. Sellers continue to be at an advantage. Keep a cool head and remember price appreciation is still on your side.

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