Higher Interest Rates? How to deal with it.
Higher Interest Rates? How to deal with it.
Full Video Transcript Below
[00:00:00] Alice Lema: Well, good afternoon, real estate fans, Alice Lema here again, broker John L. Scott here in beautiful Southern Oregon with another edition of our weekly podcast. And these are really, really fun. You know, we did something last week talking about, I think it was four questions to ask yourself, to discover if you really should be selling the property you have right now and or consider moving. And I got so many phone calls and tags and it was really great because I think we all were wondering for a lot of us in Southern Oregon, it was the smoke, but we got calls even from as far away as Portland asking more information and a more evaluation of the market that they're in.
[00:00:41] So yay for us. It's always exciting to know that this is helping and giving people something to think about. So with that in mind we're getting ready to do this week's podcast, which is the big question, higher interest rates. I got five ways that sellers and buyers can prepare. Cause it seems like that is kind of coming down the pike.
[00:01:02] But before we do that podcast, just want to give you a chance to like the channel subscribe, send it to your friend, leave me some comments. You got any questions? You can also reach out to me personally, my numbers at the end, and also on description. So yeah, we want to know that we're helping. This as an educational series and it's really fun and it sounds like it's helping, but I sure love to see some more subscriptions to the channel.
[00:01:27] Okay so with that in mind, then on with thethe sales pitch, let's go to our podcast for today. Higher interest rate. Question mark. I've got five ways. Sellers and buyers can prepare because eventually they are probably going to go up. All right. So the first thing let's address sellers. So sellers, one of the things you need to prepare for is perhaps pricing your property lower, if, and when you're going to put your house on the market, into that environment where the interest rates are higher.
[00:01:58] It's going to hit the buyer's ability to purchase and it happens to be in their monthly payment. So one of the things you're going to have to probably accommodate is a lower price just because the buyers are not going to be able to make up the difference all the time, depending on what kind of a property you have.
[00:02:18] So sellers please prepare that you might have to bring your prices down to accommodate the buyers new monthly payment, if the interest rates go up.
[00:02:26] Additionally, number two the sellers can start offering to pay some of the buyers side closing costs. Now there is some confusion about this. So let me start by saying buyers have a list of expenses there that are charged on their side, regardless of who pays them. They are charged a certain amount of money just to make their side of the transaction happen. And those fees are not only their loan origination and their side of escrow or title[00:02:57] If their state has that, buyer's paying part of that.
But it's also at least here, where we are in Southern Oregon they're supposed to prepay a whole year of property taxes. And in Southern Oregon the property taxes are high. Well actually in Oregon, property taxes are high because we don't have sales tax.
[00:03:18] So we have property taxes, a way of funding, a lot of our state expenditures. So when you have to prepay a whole year, ahead of time that can be thousands of thousands of dollars. Additionally, we frequently have to prepay a whole year of homeowner's insurance. And if there is an HOA, a homeowners association, we might have to prepay that for a whole year.
[00:03:42] So it's like, there's all this money. In fact, Real estate agents here, we walk around with this number in our head when we're in the field of calculating closing costs at about 3%. So if it's a $300,000 purchase, it could be as much as $9,000 for the buyer side.
[00:03:59] That's completely separate from what the seller pays for their side of the expenses. The seller expenses are frequently the commission, they have their side of escrow and title. They may have some repairs or things being paid out of escrow or inspections or other stuff.
[00:04:15] And so what happens is the buyer side, going back to the buyer side closing. That series of monies can be credited to a certain extent by the seller. And if you're thinking that means the seller is paying their own plus the buyers. Yes. That's what we're suggesting. So our number two, sorry, that was a long way around, but there's a lot of confusion about closing costs. First of all, there's two sides.
[00:04:38] And second of all, what I'm suggesting is is that the interest rates go up, it changes the dynamics of the market. It changes the buyer's ability to purchase. So not only the seller is probably going to have to bring the price down I think they should start offering in the listing to pay maybe half of the buyer's closing costs.
[00:04:55] Just to kind of sweeten the pot a little bit, get, get their property, to receive the offers over somebody else. You know what else you could also offer? Home warranty. Okay. So that was number two. Sellers consider, start offering to pay some of the closing costs are all the closing costs on the buyer's side.
[00:05:13] And yes, that does mean you're paying both sides. You're right. And I'm sorry, but we got to do what we can do to maximize the market conditions that we're in. Okay. Cause we're still gonna move, you know, life still goes on just because interest rates go up. All right.
[00:05:26] So now three. And this is our last seller.Then the next two are for the buyers. Sellers think of do doing your PR .You're selling now. And the reason I'm saying that is not just to be a real estate agent, although I would love more listings. But you know what the market conditions are right this second, right? This is the huge advantage actually the buyers have too, and we'll talk about that in a minute, but on the seller side, You understand where we're at.
[00:05:55] And so if you put your house on the market now, even though we're going into fall and winter, there's still a lot of starving buyers out there who also understand where they're at. So you can have a more predictable selling scenario right now. If you're going to wait and the interest rates do go up, you're going to wait where we're likely to be in a completely different market.
[00:06:13] We're going to have to reassess your whole situation again. There's nothing wrong with that. We buy and sell real estate through all kinds of markets. You know, that's just what we do. So it's not the kiss of death that interest rates go up for our sellers. But quite frankly, if you're in a position to do it now do it.
[00:06:33] If you're in a position to sell your house, now do it because you understand the selling scenario. You are okay. That was number three.
[00:06:41] Now, number four is the flip side of the scenario. Buyers, please consider buying now, because again, you understand your buying scenario, you know what you can afford. You know, what the market is, you know, what the taxes are. You kind of know the, the economic climate as best as anybody can right now in this world. You know the political climate. You know, the world, like every, we all know what's going on right now. Again, as much as anybody can. Crazy crazy world, but, but we have a little more predictability in the buying purchase scenario.
[00:07:15] So I can just say, you know, there's a lot of comfort in that. If you're going to pull the trigger later, the interest rates might be higher. then market conditions could be different again for you too.We're going to have to reassess the whole thing. But it's not a problem to reassess and do it later. I just think that if you're in a position, go ahead and do it.
[00:07:36] Now you get it done. You get that address in your name, and then you could go on your merry way and you know, maybe start saving. For investing in the next market because every market has its opportunities, regardless of what the market is, every market has pluses and minuses, and it's up to us to explain that to our advantage.
[00:07:57] Okay. So right now I think the best thing a buyer could do is get their purchase done now. So they know. And if you really want to wait, that's fine. If you really have to wait, that's fine. Just know we're going to have to reassess everything. But there's nothing wrong with that. Okay. So that's number four,.
[00:08:13] Number five buyers. I think you should prepare if the interest rates go up. You may have to have a bigger down payment so that you can still get the monthly payment you want. One of the ways to manipulate your own monthly payment is interesting. It's how much down you're doing. It's also buying in a lower price neighborhood.
[00:08:33] It's buying a lower priced house. It's buying a lower priced house in a lower price neighborhood. That would be like the third, third op you know. So buyers, you're just going to have to really think about this because you have a few elements of the market that you're in control of.
[00:08:51] One is your own down payment. One is the interest rate that you're being offered because of your own financial strength. People have really good credit. Get a better interest rate than the rest of us. People who are a employee and not a self-employed person will frequently get a better interest rate. It's all about kind of the risk assessment of the lender.
[00:09:12] So yeah, so that's do you think about it and you know, what else you could do as a buyer? And this is one of my favorite strategies. If you have extra cash is you can pay the lender to give you a lower rate. They call it buying down the rate. And that's something to talk to your lender about because sometimes it's worth it.
[00:09:34] And I know there's a lot of people that say you should never do that, but you know, I, I just love that strategy because it gives you more flexibility. In a higher price market, a higher interest rate price market. Okay. So buyers number five, just be prepared. You're going to have to do something to bring your monthly payment down.
[00:09:53] Just suck it up and paying pay higher every month. But if you want to bring it down, you're going to do that through your down payment. You're going to do it through buying down your interest rate, buying the lower price neighborhood, buying a lower priced house or the ultimate final, lower priced house in a lower price neighborhood.
[00:10:07] Okay. So those are my five ways buyers and sellers can prepare for the coming higher interest rates. And even if it doesn't happen in the next few months, it's got to happen, right. Our country cannot sustain this kind of artificial low interest rate. But boy, it's been fun to watch people lock in those interest rates and the twos and threes, it's just really, really, really been exciting.
[00:10:32] So, so there you go. Let me know if you've got any questions. Like I said, please subscribe to the channel. Give me a like a thumbs up. Reach out to me. My number is (541)301-7980 I'm around all weekend would love to chat about your real estate needs.
[00:10:51] I'm a great listing agent. I'm a great buyer's agent. Work with a lot of investors, work with a lot of tenants. I'm I just love helping tenants become homeowners. It's one of my favorite things, also great with downsizers anybody who's got to go from their big dream house down to, you know, something more.
[00:11:10] Had to do it myself. So, so good with that too, but don't be shy. I want to help when I'm around all weekend. Okay. Otherwise stay dry. We're supposed to have a little bit of rain this weekend. Yay. Yay for us. And a hug. Those that you love. Talk to you next week. Bye now.