Finally, the Real Estate Market in central Massachusetts has slowed down a bit, but it’s still very active compared to how markets have been historically; and keep in mind Tip O’Neil’s famous saying: “All politics is local”. It’s true, and applies even more so to real estate. All real estate markets are local. When you are buying or selling a house, the only real estate markets that matter are the location of the house you want to buy and where the house you want to sell is located. What’s going on in San Diego or Houston or North Carolina is irrelevant.
But now that things have settled down a bit here in Central Massachusetts, at least temporarily, I want to comment on a few commonly held assumptions about the market, which if incorrect, can trip you up.
Assumption #1) Interest rates are high right now, so I’ll wait until they drop to purchase a home. The problem with this idea is that when interest rates go down, home prices go up because demand increases; and demand increases because more buyers can afford the monthly payments. The most important cost to a home buyer (and their bank) is the monthly payment, not the actual cost of the house. The ideal situation often is to buy as soon as you can afford it, and then refinance when rates drop, which lowers the monthly payment considerably in some cases–and you actually get in to a house and can start building equity. Plus, you may save rent or current mortgage costs. We know this is true because it’s exactly what we did, albeit accidentally, when moving to Princeton.
Assumption #2) Interest rates are high right now, so I’ll wait until they drop to sell my home. The problem with this approach is that high interest rates often depress demand, because high interest rates make it harder for potential buyers to qualify for a conventional mortgage, which means that less people are able to make nice, clean offers on homes. A classic example of this is when very qualified buyers find a home they want to buy, but they have to sell their current house first. This is called having a home sale contingency. Many people are in this situation, since a home is most people’s primary asset. The problem with this is that having to sell in order to buy complicates an offer considerably, and introduces more risk to the transaction–what about if your house doesn’t sell right away? What about if the buyer for the house that must be sold runs into financing issues? Basically, anything that complicates an offer to buy a house makes that offer less appealing to the seller.
Assumption #3) I’m cooked. I’ll never get the house I want with all these interest rate complications. In reality, high interest rates can actually provide opportunities that don’t exist in low interest rate environments. This is because in a high interest rate environment, sellers might not be quite so picky about things if their house hasn’t sold right away, making buyers who have contingencies on their offer more likely to be able to have their offers accepted. High interest rates make for less highly qualified buyers, so the sellers of homes have to compromise a bit. For instance, maybe they’ll take a home sale contingency, or accept a VA or FHA loan, with all the contingencies involved with those.
There are almost always ways around impediments to selling or purchasing a home, which is a big reason why you need a realtor with a strong track record of success. As an example for solving the problem of needing to sell to buy, for instance: if your credit is good, and you have plenty of equity in your current home, sometimes you can get a home equity line from your bank, which can then be used for the down payment and purchase of the home you want to buy. Then, when you sell your current home, that loan is paid off.
One last point: the real estate market is not fixed, but rather constantly in flux; and all clients, agents, available homes, quality of life locations, interest rates, regulations, and the economy itself, factor into what is the best way to sell or buy a home. It’s an exciting, complicated, and emotional process, and it’s something of an adventure, but also one of the most important endeavors in a person’s life.