For many, the home serves as an anchor for their lives: their families, their communities and their future. The anchor holds the boat of their life in place, even amid uncertain waters. Without an anchor, the ship will float away.
In this case, finding the best location to drop anchor and decide where to live and raise a family depends on the needs of the individual or family. Usually, there is a desire to be close to extended family, friends and work or school — but however the decision is reached, it aligns with who they are, what they want and a vision of their life to be.
These choices do not exist in a total vacuum. A contributing factor is where the family can afford to live. When interest rates are above 6%, most buyers need to make significant financial decisions about how they can afford to live where they can easily travel to work and socialize with family and friends. Most families’ priority is to ensure the home is close to where their income is sustainable, but this becomes complicated in the world of remote work and two-income households.
In any circumstance, the intersection of critical location needs (from work, schools, family proximity and other factors) make the purchasing of a house not only a financial commitment but a human one. The housing choice a person makes links critically with their social connections — and therefore their overall well-being. Mortgage originators who understand this can seek out creative solutions for their clients to purchase that next home.
Life in limbo
Despite the recent interest rate drop, many potential homebuyers are waiting for rates to fall back to the 4%-5% range to feel more comfortable with the location they select for their family. Many people believe that lower interest rates will equate to lower home prices. There are some economists that believe the opposite is the case — that lower interest rates can lead to higher inflationary prices of homes.
From the most recent stats provided by Redfin, 85.7% of borrowers have an interest rate below 6%, just over 76.1% of borrowers have a rate below 5% while 57.4% have a rate below 4%. And 22% are lucky enough to have an interest rate below 3%.
While those homeowners wait for rates to fall, they’re stuck waiting, with the latest 30-year fixed rates still north of 6% as of October. And, as a result, the life decisions these potential buyers want to make are on hold as well.
When interest rates are high, homeowners are more likely to stay in their current homes, decreasing available housing inventory for the next buyer. This economic anchoring effect will significantly impact the housing market until interest rates meaningfully improve.
Live and flourish
Meanwhile, when a homeowner must change jobs because of a new career or another life-changing circumstance, they must consider creative ways to finance their next home. At that point, it becomes necessary to shift their focus.
This adaptability of the home as an anchor allows homeowners to feel empowered and in control of their living situation, even in the face of a job change or a new family dynamic, such as more children or downsizing when children leave home. The bottom line is that buyers want to find a place for their families to live and flourish. The best way to accomplish this is to build and transfer wealth between properties.
For homebuyers, contingent financing offers — making an offer depending upon the sale of their current home — are unlikely to be accepted in this market. Bridge loans can also be costly and homebuyers often avoid these loans. Some innovative financing options are being offered in the market that allow people to use the equity in their existing home to make a non-contingent offer on a new home before selling their current property.
Mortgage originators who become familiar with these buy-before-you-sale options could help their clients make the best choices for themselves and their families. And that will give them an anchor in these uncertain waters.
