If you’re looking to buy or sell this summer, the current market will likely feel a bit daunting. After all, it shares little in common with the market we have come to know in recent years. Still, this doesn’t mean it isn’t a good time to buy or sell a home or invest in properties.
Tips for Buyers: Explore Alternative Financing Options
While there are reports of some potential buyers being priced out of the market, don’t assume this applies to you. It’s true that compared to 2020 to 2021, you won’t be able to lock in to a historically low mortgage rate, but this doesn’t mean that it is impossible to finance a home purchase.
- Adjustable-rate Mortgages: As rates rise, adjustable-rate mortgages (ARMs) are quickly regaining their appeal as these mortgages offer low interest rates that are typically locked in for 5, 7, or 10 years. Compared to the average 30-year mortgage rate (currently hovering around 5.8%), ARMs can be as low as 3.5%. While an ARM may seem risky because the rate doesn’t hold over the lifetime of the mortgage, the risk is lower than you might assume for two reasons. First, most Americans only own their home for 13 years (far less than the length of the average 20-30 year mortgage). Second, it is highly likely that rates will come down over the next three to five years, which means that there is a good chance you’ll find more favorable rates available by the time you renegotiate your home loan.
- Points: Buying points is another simple way to lower your mortgage rate. If you don’t have enough cash to buy points upfront, you might even negotiate to have the seller pay for the rate buy-down. While few sellers are willing to do this in a hot market, as the market cools and properties linger on the market longer, this may again become a viable strategy.
- Mortgage Assumptions: A final and less common strategy for lowering interest rates is to pursue a mortgage assumption. Although rare in some markets, mortgage assumption clauses are found in USDA, FHA, and VA loans and permit buyers to take over an existing mortgage with its current mortgage rate, albeit with some restrictions. Given that many current USDA, FHA, and VA loans originated during the period of historically low rates encountered in 2020-2021, this is an ideal time to explore a mortgage assumption. To get started, ask your agent to search for currently available properties that hold a USDA, FHA, or VA mortgage.
Tips for Sellers: Explore the Pros of Cons of Renting versus Rebuying
With demand for homes and prices still high in nearly all regions of the United States, it is still an optimal time to put your home on the market. The challenge for most sellers is where to buy next. Given this challenge, a growing number of sellers are temporarily renting while the market settles. The key advantage of renting, even temporarily, is that as the market softens, it seems likely that inventory will build back up and prices will slightly decrease, opening up greater opportunities for buyers. Work with your agent to explore the potential pros and cons of renting versus rebuying and how to leverage this decision to your financial and personal advantage.
Other Tips: Explore Commercial Real Estate Investment Opportunities
In Q3 and beyond, opportunities are bound to be plentiful on the commercial side of the real estate market for two reasons. First, with most businesses now settled on their future plans (in many cases, they are opting to go mostly remote or permanently hybrid), it seems likely that there will be a lot of commercial properties on the market over the coming quarter. Second, since most commercial properties hold short-term mortgages and loan forgiveness is rare on the commercial side of the market, commercial properties are also bound to be particularly hard hit by the rising interest rates. If you’re looking for a relatively safe way to invest as the stock market goes on a wild ride, commercial property could be a great option.