Encouragement for Buyers & Discussion on Interest Rates
Updated: Aug 24, 2022
Amber Nestor - Professional Land, Luxury, and Waterfront Broker, Real Estate Agent, for Tennessee
Tuesday, August 23rd, 2022
Quote of the Day:
Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it”.
I am going to start with a brief explanation about interest rates, which will be overly simplified, and then I will transition into a discussion about advice for anyone seeking to buy land, home, property, etc.
We have governing bodies that set base line interest rates. Then, when a consumer, a buyer, goes to obtain a loan or lending of any sort, the rates that they are offered vary upward, typically, above that base line rate.
This means that while "base line" rates ( Fed Rates, Prime Rate, etc. ) in the realm of interest, compound interest, charged on lending might be around a 5.5%, the product you are offered, might be around a, 8.25%. A VERY big difference. And a terrible one, if you consider rates were around 2.5%, and lower, just a few months ago.
This is having a big impact statistically on the buying public. A certain percentage of the buying public will buy with all cash, but EVERYONE else is relying on a loan to finance their property purchase, and typically that loan must finance the sale's price at a rate of as little at 80% of the purchase price, to as much as 100% of the purchase price.
The portion of the cash buying public is small. The portion of the loan dependent public is larger.
Therefore, what you get is a large portion of the U.S. population looking at two things:
What will my monthly payment be on this loan?
What will my total investment be into compound interest during the life of the loan?
What will my return on my investment be at the end of this project, or when, or if, I decide to sell?
When the cost to acquire real estate, property, land, home, or to build new construction increases, the risk increases, the net profit decreases, the monthly cash flow decreases, and the return on investment decreases, and the overall expense invested into compound interest increase.
There is VERY little wiggle room for error.
This means that buyers are going to largely adjust their purchasing decisions as a result of these factors.
Whether a buyer is purchase a primary home, land, rental property, investment, lake house, vacation home, AIRBNB or VRBO investment, etc., they are impacted heavily.
If interest rates continue on this pattern the buyer must ask themselves:
Is this a purchase I just CAN NOT wait on?
Is this purchase worth it to me RIGHT NOW?
What purchase price would I need to lower my offer to, in order to make this purchase worth it to me?
And this is how prices on property, especially houses, start to come down.
I believe homes for sale are going to feel a much STRONGER impact in regards to prices going down, while in contrast land will be LESS impacted by this factor, because percentage-wise, a lot of people planning to buy land, and planning to finance that purchase with cash or with a creative lending strategy. While most folks planning to purchase homes with a Mortgage product are going to have more pause to adjust to recent changes in factors and expectations.
Since most people would consider prices on HOMES to be very inflated disproportionately currently, it might help prices come down, and it might help sellers to be more motivated to accept lower sales prices, because their agents are likely advising them of the increased costs that buyers are experiencing.
So, what if you are a buyer, and you simply can not afford to buy with things the way they are right now.
I know things might seem extremely hard right now, and that's because they are, but if you look at the big picture, understand this:
All you have to do is ONE THING.
Keep your income stability.
Stay living in one place.
Work on increasing your credit score. (Call me if you'd like some advice on this. I have tons of tips, and conducted a multi-year study on creative and unique ways to do this that banks often won't tell you about.)
Pick apart your monthly expenses.
Negotiate lower bills.
Pay down debts.
Because over the next few years, if you just do that one thing, and stay consistent, you are likely to see an increase in inventory to choose from, lower prices, more motivated sellers, and eventually, if you are consistent, when the right deal pops up, you will be READY!
The boat is rocking, the storm winds are creating some waves, but if you just hold on a while, and stay consistent, smooth sailing is ahead!!!
There is but one secret to success friends: Never give up.
I pray that God blesses you with health, wealth, and prosperity.
Thank you for visiting my blog on real estate. Have a beautiful day. I appreciate your business.
Amber Nestor - Broker - Professional Agent for Tennessee (for buyers, sellers, and investors)