The U.S. Central Bank hiked interest rates by three-quarters of a point in September—the third rate increase in 2022. When writing this blog post, costs for property buyers had reached 3-3.25 percent after being near zero until the spring. Experts predict rates to be at least 4 percent by the end of the year.
These rate increases are problematic for buyers thinking about purchasing a residential or commercial unit. Additionally, rising interest rates impact sellers when buyers can no longer afford their properties. This blog post includes tips for explaining the current financial situation to stressed-out sellers.
What’s Going On With Interest Rates?
Experienced realtors like you might have seen interest rates jump and drop multiple times over the years, so these recent rate increases are nothing new. However, that doesn’t stop sellers from worrying about whether they can sell their properties if buyers can no longer afford the repayments on their loans. Even though rates will eventually drop again, you likely understand the frustrations of sellers who contemplate taking their properties off the market and riding the current financial crisis out.
Explain to sellers that they don’t need to worry about whether they can sell their properties because of rising interest rates. With your help, they can still move out of their property—and get a fair price for it—even if some buyers are reluctant to take out mortgages right now. You’ll learn how to do this later in this post.
Why Are Interest Rates So High?
The main reason behind the current interest rate situation is inflation, which influences the cost of products and services. That includes food, gas, and financial products like mortgages from banks and credit unions. When inflation increases, so do interest rates. It’s happened multiple times before and will happen numerous times again. It’s just how the economy works.
High-interest rates dictate how much borrowers—those who buy properties but need a mortgage do so—pay for financial products. So when the government increases rates, borrowers will need to make higher interest payments on their residential or commercial property loans. That might mean 10 or 20 dollars more a month, or that might mean hundreds of dollars a month. It all depends on the size and term length of the mortgage.
While rising interest rates might only be temporary—they will drop again when inflation stabilizes at some point—they are a scary prospect for buyers, and naturally so. A buyer interested in your seller’s property might be unable to afford another couple of hundred dollars a month in mortgage payments because they have a tight budget. That can result in the following scenarios:
- A buyer reapplying for a mortgage on a cheaper property than your seller’s.
- A buyer pulling out of a sale because they can no longer afford to live in a property.
- A buyer moving into a property regardless and then not being able to afford repayments and defaulting on their mortgage. This scenario won’t affect your seller, but it’s still something that can happen.
What Can Sellers Do About Rising Interest Rates?
Unfortunately, nothing. The federal government sets interest rates, and lenders follow them. Sellers might have to change behaviors as a result, though. If a buyer can no longer afford to live in their property and is considering pulling out of the sale, you might need to advise your seller to:
- Lower the price of their property so the buyer can afford mortgage repayments.
- Put their property back on the market and find a new buyer with your help and experience.
The problem with this last action is that other buyers might not be able to afford your seller’s property, meaning it will stay on the market for longer and prevent them from moving to another location. Then there’s the uncertainty of knowing when that property will sell again. As previously mentioned, interest rates will drop, but nobody—including the government—knows when or by how much. That’s what’s so scary about the current financial landscape.
How Can Realtors Sell Properties Right Now?
It’s important to realize that interest rate hikes affect realtors like you, too. If you can’t sell a property, you don’t get a commission. So you need to work twice as hard to sell a residential or commercial unit. Some techniques for navigating the current crisis are:
- Spending more time convincing potential buyers about the benefits of owning your seller’s property. For example, you can explain why a unit is a good investment that will generate significant value over time.
- Organizing open houses and other events drives interest in a property and convinces potential buyers of its value.
- Recommending buyers lock in the current interest rate with their lender and take a chance. As mentioned in the intro, experts predict interest rates will rise again. Even though rates might not be attractive now, they will likely worsen. If interest continues to increase, a buyer might not be able to afford any property for years to come. It’s not a case of “now or never” but “now or not for a long time.”
- Talking to buyers about examining their budgets to see if they can afford higher mortgage repayments. For example, a buyer could reduce outgoings to take into account higher interest rates. While nobody wants to live on a strict budget, cutting back on spending could allow a buyer to move into your seller’s property now and generate long-term value.
Interest rates are on the rise and could increase again shortly. Realtors know that means buyers might not be able to afford a seller’s property and could pull out of the sale. Sellers might struggle to find a new buyer and have to stay in their homes for an undetermined amount of time. Working with an experienced realtor like you can help them navigate this financial crisis.
ProspectNow is an AI-powered tool that generates in-depth data about every single property in America. Use it to access historical sales data, valuation data, and other insights to market sellers’ properties and showcase their value to buyers. Start your free ProspectNow trial!