Real estate markets are always in a perpetual state of change. But over the past 4-5 years, there have been significant shifts that have both excited and scared potential investors and homeowners.
Since COVID-19, the real estate industry has experienced significant highs and lows. Add this to recent economic uncertainties with fast-changing markets, inflation, and uncertainty surrounding the impact of global trade, interest rates for mortgages have seen significant increases.
This latest trend has put a lot of pressure on both buyers and sellers in real estate markets to be very careful about where and when they make their moves. Below, we’ve listed several strategies that both buyers and sellers can use to successfully navigate the rising interest rates.
For Buyers – Re-evaluating Your Budget and Affordability
As a potential home buyer, it’s critical that you have a clear budget in mind surrounding your must-haves and what you can realistically afford in this challenging market.
It’s important to remember that the flexibility of banking institutions is changing considerably, and there is a lot more due diligence when it comes to how they manage their risks. Before getting too excited about a new property option, make use of an up-to-date mortgage calculator that will help you to gauge what type of loan you might be able to get approved for.
When building out your budget, don’t forget to factor in the ongoing expenses you’ll need to account for post-purchase. This includes any property taxes you’ll owe, home insurance premiums, and homeowner association fees if applicable.
For Sellers – Pricing Your Property Strategically
Knowing when you’re in the right market to sell is critical to maximizing your profits. It can definitely be more challenging in a market like we’re seeing now with higher interest rates, but this doesn’t mean you shouldn’t consider your listing options.
One of the best things you can do is to continuously scan similar homes in your surrounding area and see their pricing strategies. Keep a close eye on what is actually selling and identify where your most optimal listing price should ultimately be. Even if your property has more amenities, it’s still important to think strategically about what your asking price should be.
You want to try to avoid listing your home for too long, as this can lower your chances of getting more potential buyers, as they’ll assume something may be wrong with the property.
For Buyers – Exploring Different Mortgage Options
To make a smart home buying decision in today’s market, buyers should consider all of the mortgage options available to them. Most of the time, you’ll hear terms like fixed-rate or variable-rate mortgages referenced, and each of these has its own pros and cons.
With fixed-rate mortgages, you’ll have a locked-in interest rate for a certain number of years (typically anywhere from 15-30 years). This gives you more predictable loan payments, although you’re not able to benefit from lower rates if the market shifts.
In a variable-rate mortgage, your mortgage payments may start off quite low, but they will fluctuate regularly as the market changes. This is considered a more risky approach to mortgage lending, but it can also mean you’re able to benefit over time if the market swings in your favor.
For Sellers – Increase Your Property’s Value
If you’re interested in selling your home, the current market conditions might mean it’s better to spend a little time increasing your property’s value before you list. With interest rates rising, most home buyers want to make sure their investment is really worth their time and resources.
Starting a home renovation project is a great way to help you achieve this. Even smaller improvements like remodeling your bathroom can be a great way to add more value to your home. You could also focus on practical improvements like repainting the interior or refreshing the outside of your home.
Taking these steps can help to highlight your home’s best features and help it to stand out from other properties being listed in your area.
For Buyers – Expanding Your Property Search and Being Flexible
Depending on how long you may have been looking to purchase a home, the higher interest rates may likely mean you’ll want to expand and modify your property search strategy. While you may have a specific purchasing area in mind, the current market may mean more restrictive options within your budget.
It’s important to be a bit more flexible around your list of “must-haves” and “nice-to-haves.” Making certain sacrifices like extra yard space or close proximity to shopping areas or schools may not be ideal, but they can often help to give you more purchasing flexibility without going over budget.
For Sellers – Understanding the Timing of Your Sale
Timing is everything in real estate, and this couldn’t be more true than when interest rates are at a peak. As interest rates increase, the borrowing costs for potential borrowers go up significantly. Because of this, many buyers may want to naturally take their time when looking through potential properties.
Listing your property too soon could mean it stays on the market longer and may gradually lose appeal over time. This is where working closely with a real estate agent can help. They’ll advise you whether or not it’s a good time to sell and how quickly you’re likely to close. They may also advise completing certain home renovation projects before listing to increase the likelihood of receiving more offers.
For Buyers – Negotiating Strategies in a Shifting Market
While higher interest rates may mean fewer potential buyers for sellers, it also means that those buyers can have more negotiating power than they realize.
For example, when markets swing a certain way (similar to how they are now), buyers can leverage their own interest to negotiate between sales terms, lower price points, or certain contingencies before closing on the property.
Make Smarter Choices Regardless of Market Conditions
Real estate markets are always changing so it’s important that whether you’re a buyer or a seller, you’re regularly staying up-to-date with how these shifts will impact your goals. By following the strategies discussed, you’ll make sure you’re making smart purchasing or selling decisions no matter how the market moves over time.
Author Name: Michael Alladawi
Author Bio: Michael Alladawi, CEO & Founder of Revive Real Estate, is a Southern California real estate veteran with a proven track record as a builder, investor, and respected home flipper. Michael created Revive Real Estate to share his industry knowledge and help homeowners maximize their profits when selling their homes. Michael’s passion for his work is as big as his desire to create lasting partnerships. For Michael, it all comes down to how much value one offers, both in business and life relationships.
