Higher Rates: A Hidden Opportunity for Home Buyers

By George Koutsos

I’m not going to tell anyone that higher mortgage rates are a great thing.

They’re not.

If you’re trying to buy a home, you feel the difference every month. A higher rate means a higher payment, less purchasing power, or having to adjust what you were hoping to spend.

And for buyers who have been saving, waiting and watching home prices stay stubbornly high, I understand why it can be frustrating.

But there’s another side to this market that I think deserves more attention.

A more difficult financing environment can sometimes create a better negotiating environment.

That doesn’t erase the higher payment. But it can change what happens when you actually find the right house.

And after watching buyers compete in some pretty unforgiving markets over the years, having a little leverage again isn't something I'd dismiss.

Remember What Lower Rates Looked Like

It's easy to look back at lower mortgage rates and think everything was better for buyers.

The financing certainly was.

Buying the house wasn't always.

When rates were exceptionally low and demand was surging, buyers were often competing against multiple offers. Homes could sell almost immediately. Buyers waived contingencies, offered significantly over asking price and sometimes had very little opportunity to negotiate anything.

I remember plenty of buyers who loved their mortgage rate but hated what they had to go through to get the house.

That's the tradeoff we sometimes forget.

A great interest rate isn't quite as exciting when you have to pay $50,000 over asking to beat 15 other offers.

A Slower House Can Be an Opportunity

This is where today's market gets interesting.

When a property doesn't sell immediately, the conversation can change.

Maybe the seller becomes more flexible on price.

Maybe they'll consider contributing toward closing costs.

Maybe there's an opportunity for a seller credit that can be used toward an eligible temporary or permanent rate buydown.

Maybe the buyer can keep more cash in the bank instead of using every available dollar to get the deal done.

And sometimes it's simply the ability to make a reasonable offer without feeling like you have five minutes to decide.

Those things have value.

I've always believed buyers should look at the whole transaction, not just one number.

The rate matters. So does the price.

But so do the concessions, cash required at closing, monthly payment, competition for the property and the terms you're able to negotiate.

A Price Reduction Isn't Always the Best Deal

Here's an example I think more buyers and Realtors should consider.

Suppose a house has been sitting for a while and the seller is willing to negotiate $15,000.

Most buyers immediately think:

Take $15,000 off the price.

That's certainly one option.

But before doing it, I'd want to see the other options.

Depending on the loan program and transaction, what if some or all of that $15,000 could instead be negotiated as a seller credit?

Could it reduce closing costs?

Could it be used toward an eligible interest-rate buydown?

Could keeping some of your own money in the bank leave you in a better financial position after closing?

Run the numbers both ways.

A $15,000 price reduction sounds substantial, but when that reduction is financed over 30 years, the change in monthly principal and interest may be smaller than people expect.

Using that negotiating room differently can sometimes have a much more noticeable effect on the buyer's immediate finances.

Not always.

But often enough that it's worth doing the math before writing the offer.

Today's Buyer May Have More Time to Think

There's another advantage that's harder to put into a mortgage calculator.

Time.

Buying a home is a big financial decision. You should be able to think about it.

In extremely competitive markets, buyers don't always have that luxury.

You see the house Saturday.

Offers are due Sunday.

Best and final.

Someone else is offering cash.

What are you doing?

That's a difficult environment for anybody, especially a first-time buyer.

When competition cools, even a little, buyers may have more opportunity to understand the property, look at the financing and make a thoughtful decision.

I think that's healthy.

You May Have More Ways to Structure the Deal

This is probably where a good Realtor and lender can make the biggest difference right now.

Instead of asking only:

“How much should we offer?”

Ask:

“How should we structure the offer?”

Those are very different questions.

Maybe price is the most important negotiating point.

Maybe it's a seller credit.

Maybe it's closing costs.

Maybe it's preserving cash.

Maybe it's using a temporary buydown to make the first couple of years more comfortable.

Maybe the right answer is simply making a clean offer at a price you're comfortable with and keeping the protections that matter to you.

There isn't one strategy that works for every buyer or every house.

That's the point.

When sellers have less leverage, buyers may have more options.

And Yes, the Payment Still Has to Work

This is where I wouldn't sugarcoat things.

You shouldn't buy a house you can't comfortably afford because somebody tells you that you can refinance later.

Rates may come down.

They may not.

If they eventually fall enough that refinancing makes financial sense, great. We can deal with that opportunity when it exists.

But I wouldn't build someone's home-buying plan around predicting the future.

I'd rather structure a purchase that works today.

Then, if the market gives us an opportunity later, we take another look.

That's a much safer conversation.

There's Rarely a Perfect Housing Market

I've been doing this for more than 35 years, and I've yet to see the market where buyers get everything they want.

When rates are very low, competition can become intense.

When competition slows, rates may be higher.

When prices soften, financing conditions may be changing.

There's usually a tradeoff.

The mistake is assuming that because one part of the market isn't ideal, there can't be an opportunity somewhere else.

There often is.

You just have to know where to look for it.

Look at the Deal in Front of You

If you're thinking about buying, I wouldn't spend too much energy trying to figure out whether today's market is officially a “good” or “bad” market.

I'd look at the house and the numbers in front of you.

Can you comfortably afford it?

Is it a home you'd be happy owning for several years?

How much competition is there?

Does the seller have some flexibility?

What could a seller credit do?

Would a price reduction be more valuable?

How much cash would you have left after closing?

Those are questions we can actually answer.

And sometimes, when we run the numbers, a market that looked pretty discouraging from the outside starts to look a little different.

Higher rates are a challenge. There's no reason to pretend otherwise.

But if those rates mean you have more time, less competition and more ability to negotiate the transaction, there's value in that too.

For the right buyer and the right house, that can create an opportunity worth looking at.

If you find a property and want to see a few different ways the numbers could work before you make an offer, give me a call. I'm happy to run through it with you.

George Koutsos
The Koutsos Team | CrossCountry Mortgage
781-864-0889
george@teamgk.com

Loan terms, seller concessions and buydown options vary by loan program, borrower qualifications and transaction. Examples are for illustration and are not a commitment to lend.