An increase of a fraction of a point can take some buyers out of the real estate market.
Talk of rising mortgage interest rates concerns both buyers and sellers.
Neither group shows signs of panic, but they want to complete their deals sooner rather than later.
Buyers have been budgeting their top-dollar offer based on interest rates. When that rate rises, the monthly mortgage payment does, too.
If interest rates rise to budget-busting levels, prospective buyers withdraw their bids.
In most cases, rising interest rates cause buyers to put off initial home improvements, like paint or new carpet, said Diana Galavis, who sells for Watson Realty Corp. Southside and is the president-elect of the Northeast Florida Association of Realtors.
Worst case, the prospective buyer is taken out of the market.
“Prospective buyers are staying in rentals longer that they expected. Property owners are raising rents. If they are spending more money on rent, that is less money they have to save for a house,” she said.
Buyers and sellers are becoming creative, said Mark Rosener, 2022 NEFAR president and Watson Realty Corp.’s regional vice president of the North Central Region of Florida.
“I am hearing that sellers are wanting to close but do a post-occupancy deal so they can find a house that they want to buy. The buyers are willing to do that to be able to close with the lower rate locked in,” Rosener said.
In other cases, buyers and sellers arrange for needed repairs to be made after the sale to lock in a low rate.
“People would rather just close and handle the repairs at a later date,” Galavis said.
“I had a buyer who was told it would take a minimum of six months to fix a window.”
A rate hike hurts sellers as well.
A seller may have to reduce the asking price if there are time considerations or face starting the sale process over.
One reason there is no panic is because nearly one-third of all Northeast Florida home sales are cash transactions, said Missi Howell, of The Legends of Real Estate and 2021 NEFAR president.
“With cash on hand the interest rate has nothing to do with it. Cash is still king,” she said.
However, one area of concern is that of new construction transactions, she said.
The double whammy of inflation and materials shortages is increasing the cost of a new home, and that is before an interest rate hike.
For a 30-year fixed-rate mortgage, bankrate.com lists initial rates of 3.62% to 4.25% with annual percentage rates of 3.76% to 4.25%.
That is higher than the average rate of 3.19% at the end of 2021 reported by bankrate.com.
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