How I’m Dealing with Record Interest Rates
When interest rates rise, there is lower buyer activity in the market. Â Supply & demand shifts slightly as the monthly payment for a certain price point increases slightly. Â For example:
- $300,000 mortgage at 6.5% payment is $1,896.20
- $300,000 mortgage at 7.5% payment is $2,097.64
As you can see, it now costs the buyer more money to buy that same $300,000 house. This reduces the number of buyers able to qualify for that home, even if only by a small amount.
Add in the coming Winter market and we are looking at short term risk here of slowdown. Buyer activity drops each Winter AND Buyer activity drops as interest rates rise.
While I believe this is temporary (I predict that we are likely to have one more .25% rise to allow a few rate reductions early next year), I am still adjusting my strategy slightly.
- Do MORE Due Diligence – before accepting any “Pre-Approved” mortgage buyers. Buyers may have old approvals and might be reaching to buy my listing/property. I’d rather discover that on day 1, than day 35 when they cancel and I have to start over with a new buyer.
- Price Drops Right Now – Since it is Winter & higher interest rates, I am more aggressively dropping the asking price on our finished flips which are currently on the market.
The way I view price drops-I am paying for the privilege of more buyer interest through a price drop. Right now, this weekend, I’m willing to pay MORE (by dropping the price further than I would if rates were flat) to attract the smaller number of buyers currently in the market to buy my house.
If you have any retail listings currently on the market which aren’t getting interest, it might be time to revisit the price more aggressively than you might have before the rates increased.