WHAT IF RATES DON’T COME DOWN?

If you had asked me a month ago what I thought about the real estate market, I would have told you it was challenging, but I still believed lower rates were coming. Well, a funny thing has happened over the last few weeks. I am starting to hear something I haven't heard in quite a while: "Maybe I should buy now before rates go higher." Yup, the conversation on the street is starting to change. Instead of everybody asking when rates are going to drop, buyers are starting to wonder whether rates could stay where they are or even move higher. That is a very different conversation, and I actually think it may finally get some people off the fence.

I am not saying rates are going higher, and I am not saying they are going lower. What I am saying is this: What if what we have today is simply what we have? What if rates stay somewhere around these levels for another year, two years, or longer? At some point, we have to learn how to succeed in the market we actually have instead of waiting for the market we hope is coming. 

That means all of us have to become better at explaining today's market to our clients. For years, many buyers have been waiting for the magic combination of lower home prices and lower interest rates. Maybe that happens. Maybe it doesn't. But once a buyer starts to understand that rates may not fall dramatically, they can finally start making decisions based on reality instead of waiting for something that may never happen. Maybe they adjust their price point. Maybe they look in a slightly different neighborhood. Maybe they put more money down. Maybe they pay off another debt to improve their monthly cash flow. Maybe they negotiate a seller credit and use it toward their financing. There are a lot of ways to make a transaction work once somebody stops saying, "I am just going to wait until rates go back to 3%."

And this may also change the way we look at rate buydowns. Temporary buydowns like a 2/1 or 1/0 have been great tools when the assumption was that rates would be lower fairly soon and the buyer could refinance before their payment stepped all the way up. But if there is a real possibility that rates stay where they are or even move higher, a permanent rate buydown may deserve a lot more attention. Instead of using a seller credit to temporarily lower the payment for one or two years, we may want to use some or all of that credit to permanently reduce the interest rate. That gives the buyer a lower payment for as long as they keep the loan. If rates do eventually fall enough to refinance, great. But if they don't, the buyer locked in a better rate from the beginning. In the market we are looking at today, that could be a very powerful conversation to have with both buyers and sellers.

And here is the part I think we really need to get through to our clients. When you look at more than 50 years of mortgage history, today's interest rates really are not as outrageous as they feel. We became spoiled by an extraordinary period of historically low rates, particularly from roughly 2011 through 2021, and many buyers now think that 3% or 4% is somehow a normal mortgage rate. Historically, it really wasn't.

30 Year Mortgage Rates by 5 Year Period

Period                        Average         High                Low

1971 - 1975                8.28%             10.03%          7.23%

1976 - 1980                10.45%          16.35%          8.65%

1981 - 1985                14.45%          18.63%          11.09%

1986 - 1990                10.24%          11.58%          9.03%

1991 - 1995                8.25%             9.75%             6.74%

1996 - 2000                7.57%             8.64%             6.49%

2001 - 2005                6.21%             7.24%             5.21%

2006 - 2010                5.70%             6.80%             4.17%

2011 - 2015                4.02%             5.05%             3.31%

2016 - 2020                3.84%             4.94%             2.66%

2021 - 2025                5.69%             7.79%             2.65%

2026 YTD                  6.37%             6.71%             5.98%

When you look at those numbers, where we are today really isn’t that bad compared with much of the last 56 years. Now, I know what everybody is going to say next: "But home prices are higher." Absolutely. Home prices are higher. Insurance is higher. Groceries are higher. Gas is higher. Pretty much everything costs more today. But wages are also higher, incomes are higher for many people, and there is still an incredible amount of opportunity out there. LOTS OF OPPORTUNITY! People are still getting raises, starting businesses, inheriting money, getting married, having kids, relocating, selling homes, changing jobs, and needing a different place to live. Life does not stop just because mortgage rates are 6% or 7%.

Our job isn’t necessarily to convince someone that interest rates are going down. Our job is to find out what is keeping that particular client from buying a home today. Is it the payment? Is it the down payment? Is it their current debt? Is it their credit score? Do they need to sell another house first? Are they afraid of buying at the wrong time? Are they simply looking at too much house? Once we know the real objection, we can work on solving it. Maybe we use a permanent rate buydown. Maybe we restructure the loan.

Maybe we use a bridge loan. Maybe we lower the price point. Maybe we get a seller credit. A different financing strategy could change the entire conversation.

Because waiting indefinitely for 3% mortgage rates to return is not a strategy. Suppose rates come down substantially after somebody buys, fantastic. They can refinance and hopefully lower their payment. If rates stay right where they are, the buyer stopped waiting, bought the house they wanted, and started building equity. And if rates actually move higher, that buyer may look pretty smart for having purchased when they did.

Trust me, I am probably the last guy in the world who wants higher rates for any extended period of time. I could give you 100 reasons why over lunch! But I am going to start living in the moment and saying something I probably should have started saying sooner:

Rates are what they are. The market is what it is. Now let’s figure out how to make it work.

We cannot control interest rates. We cannot control the Fed. We cannot control what happens next month or next year. But we absolutely can control how well we educate our clients, how creative we are with financing and how hard we work to find solutions.

So, find the reason your client isn’t buying, attack that problem, and let’s go make something happen!

Interest Rates

September 2nd and 3rd were good, but every other day this month has been crap! Rates are what they are! LOL!

Loan Programs Snapshot

• Government loans (FHA/VA/USDA): in the low 6s –
• Conventional (≤ $832,750): mid 6s
• High-balance: mid to high 6s
• Jumbo: Mid 6s
• Bridge Loans  7.75-7.99

Additional options:

• Bank statement loans (10% down+)
• P&L loans (20% down, no bank statements)
• 0% down options (620+ score)
• DSCR loans (15% down)
• Buydowns Available (3/2/1, 2/1, 1/0)
• Private Money loans – Hard Money  
• Construction Loans
• 203K loans
• Commercial Loans
• Fix and Flip Loans  

Rates subject to change without notice.

Condo Update

Good news:
Nothing this week!     

Bad news:
Acacia Village in Glendale – deferred maintenance – SB 326 Stuff!  

We love your Non-Warrantable Condo loans!!
Need help checking a condo? Call me, and we can look it up in real time.

Also:
Full California “naughty list” available here:

https://mikemeena.com/non-warrantable-condos/

If you or your clients, friends, or family need guidance, I'm here.

📞 661-291-2222 (Direct)

📞 661-714-6258 (Cell)

📞 661-260-2970 ext. 2222 (Office)

📧 Mike@AugustaFinancial.com

Sincerely,