Buyers have watched mortgage rates shoot from 3 percent to 5 percent this year alone, and that common refrain — “Is it really the best time to buy?” — is always top of mind for clients, agents told Inman.

Eager to downsize from his longtime home, one of Connie Dornan’s clients is finding his options surprisingly limited.

The house is large and beautiful, and would sell in a heartbeat, Dornan, an @properties agent told Inman.

Connie Dornan

But almost anywhere Dornan’s client looks in the Chicago area, he’s unable to find a suitable place to own or rent that would be less expensive than simply staying put.

The “problem,” if one can call it that, is that the client’s mortgage is so affordable to begin with. The rate on his current loan is below 3 percent, she said. “Downsizing” to a cheaper property would involve a significant hike in his mortgage rate. 

“It doesn’t look very favorable for him to sell his house right now, even though I could sell his house for top dollar,” said Dornan. “It’s where would he go, is the issue; and at what cost?”

The “lock-in effect” – the impact rising mortgage rates could have on for-sale inventory – is one reason Fannie Mae economists are forecasting a 9.7 percent decline in home sales next year.

As Fannie Mae Chief Economist Doug Duncan recently put it, “Households with a 3 percent, 30-year, fixed-rate mortgage are unlikely to give that up in favor of a mortgage closer to 5 percent.”

This downsizing scenario is just one of a variety of tough challenges posed by rapidly rising mortgage rates that agents are having to help their clients navigate, according to agents and brokers who spoke with Inman.

Here are their tips for helping clients navigate these problems.

Meet your client where they are

Coupled with home price growth, mortgage rate increases create unique problems for each type of buyer.

Rates for 30-year conforming loans exceeded 5.5 percent Tuesday for the first time in years after months of fast-paced growth, according to digital marketplace Optimal Blue.

Alyssa Hellman

Clients who have gone through the homebuying process before often remember a time when mortgage rates were higher than they are today, said Alyssa Hellman, real estate broker at My Southern View in Raleigh, North Carolina. This can make it a bit easier to coach them through today’s rate increases.

But volatility in the market for home loans — where rates have gone from sub-3 percent to higher than 5 percent in a matter of months — has still been jarring, especially for first-time buyers, she said. 

“Any buyer in any market is used to some sort of fluctuation,” Hellman said. “But it’s the speed at which rates went up, and shot up, that caught people off guard.” 

This shifting environment has led some of Hellman’s buyers to ask her whether it’s really the best time to buy.

“They’re just trying to make sense of it,” Hellman said. 

Clients occasionally ask whether it might be best to wait out the market. 

“The last time we saw anything remotely like this, it was 2006 and 2007, leading up to 2008,” Hellman said of what buyers are seeing. “My personal opinion is, they’re going to be waiting a very long time for that.”

For one thing, a 5 percent mortgage rate is still low by historical standards, Hellman said. For another, buyers remain more qualified to take out loans than they were in the runup to the housing crash of 2008.

Focus on the big picture

Becco Zou

Becco Zou

This historical context is one of the first things Becco Zou shows her clients when they express concerns about mortgage rates. 

Zou is a Compass agent in the Seattle area, who works primarily with local and overseas Chinese clients. When her clients express concerns about mortgage rates rising from their pandemic lows, she pulls out a chart of mortgage rates that spans back decades. 

This chart reflects the reality that prior to 2009, a 30-year fixed rate mortgage rate as low as 5 percent was essentially unheard of. Rates spent most of the 1980s in the double digits.

If her buyers are in the market for a primary residence, Zou advises them not to fear today’s interest rates. For investor clients, giving advice is more complicated and depends on their risk tolerance, Zou said.

“I do have buyers who continue to purchase with my encouragement,” Zou said. “I see myself as a resource for them. They are the final decision makers.”

Push past the regret

Sam DeBianchi

Sam DeBianchi LaViola said some of her South Florida clients have experienced regret for not securing a home earlier, as they grapple with the notion that better buying opportunities may have passed them by.

“Obviously, people who didn’t buy six months ago are kicking themselves and wishing they did buy,” said DeBianchi, president of DeBianchi Real Estate. “It’s a mix of, ‘Damn, I wish I had bought that house,’ but also, ‘I wish I had bought that house to lock in that rate.’”

But if anything, DeBianchi’s clients haven’t been deterred by the rising mortgage rates. In fact, they’re more eager to move quickly to purchase in order to get ahead of future rate increases, she said.

“A lot of people still have the mindset that they want a home, they want to plant roots,” DeBianchi said. “I have a laundry list of buyers right now, and all of them are ready to pull the trigger as soon as we find something.”

Still, it’s getting harder for buyers to make a home purchase work within their budgets.

Mortgage data and technology provider Black Knight said this week that if rates rose by another half a percentage point — or if home prices went up another 5 percent — affordability would hit the worst levels on record. And in about one-third of the country, it already has, Black Knight reported.

Stay in touch with the lender

The volatile rate environment also increases the importance of locking in rates early, Hellman said.

A short time ago, Hellman didn’t feel the need to check frequently with her lender on where interest rates were heading. The rates just didn’t fluctuate that much from day to day.

Things are different now.

“It’s never been more important to have a close working relationship with a lender that you know and trust,” Hellman said.

In addition to checking on rates for her clients, she said it’s been critical to stay on top of the rate-lock process with the lender. When the transaction timeline and mortgage rate makes sense for the buyer, the client shouldn’t delay locking in the rate, she said.

DeBianchi and Hellman have also both advised clients to ask their lenders about adjustable-rate options, and some have started to go that route in recent weeks. These products fell out of favor after the housing crash, but can be a way for people who intend to refinance or move within a few years to lock in a more affordable monthly payment in the meantime.

Embrace the challenge

The increasingly trying market conditions have also made it a bit tougher for agents and mortgage brokers to impress clients, DeBianchi said.

Earlier in the pandemic, options were simply better for the typical buyer. Prices were rising quickly. Inventory wasn’t in great shape, but it was at least better than today’s market. And if the client didn’t feel they were getting a great price on a home, they at least were likely to get a historically low mortgage rate.

From a buyer’s perspective, all of those factors have since changed for the worse. 

Agents, DeBianchi said, “don’t look like these amazing people anymore, as far as saving the day.”

But their expertise is just as important, she added.

Email Daniel Houston

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