How To Overcome Higher Interest Rates as A Buyer in the Greater Phoenix Real Estate Market

Yes, interest rates are higher than they’ve been in years.  But should higher rates prevent you from moving forward with buying a home?  

Maybe, maybe not. 

As I always say, the best time to buy a home, whether you are buying your first home or your 10th home, is when it makes financial sense for YOU—regardless of what everyone else is doing, regardless of what the market is doing, and regardless of interest rates. 

Just like investing in your 401k—you are building wealth for the long-term. You don’t decide whether or not to save for retirement based on the daily movement of the stock market.  

Buying a home is the same. Invest in your future when it makes financial sense for you to do so. 

Fortunately, there are some great options out there to still “win” as a buyer in this market!

Now is a Good Time to Evaluate

If you are thinking about buying a home in the coming year, let’s look at options and strategies that can help you have a better understanding of what is best for you, your homeownership goals, and your financial situation.

We have just passed the holiday season, the slowest time in the Phoenix real estate market. Now could be the perfect time to evaluate your situation and decide which direction is right for you before the spring housing market kicks into full swing.

Wait It Out or Move Forward?

If you’ve been thinking of buying a home, you need to consider the best decision for you—whether to wait it out to see if rates decline and prices adjust, or to move forward with a purchase.

Determine which path is best for you based on the criteria in the bulleted list below. Don’t hesitate to reach out to me to discuss your specific situation so I can provide additional perspective and insight.

• Know how long you plan to live in your next home. If you plan to live in your next home for more than 5 years, moving forward with a purchase could be the best option. It makes more financial sense over the long-term knowing you can refinance when interest rates drop. If you’re not sure how long you plan to live in your next home and it’s not urgent, then there is no harm in waiting 6 months to see how the market changes.

• Feel secure with your income, credit score, and general financial situation. To get the best interest rate available, you need to have your financial house in order. If you have a stable job, steady income, and good credit, you’ll have the most loan program and interest rate options available to you. If it makes sense to wait until one or all these factors have improved, then wait!  Just don’t be in the dark. Compare your current situation, to what it could be in the future, and make an informed decision on the best timing for you.

• Focus on your monthly payments, not the interest rate. Demand is down, so prices aren’t soaring like they did this time last year. Some areas are even seeing price reductions. Even though interest rates might be higher than they were last year, the price you pay for a home might be lower. This means your monthly payment could end up being about what it would have been a year or so ago when rates were lower.

• If you are a first-time buyer currently renting, consider the pros and cons of paying rent compared to a mortgage. What’s better for you, rent or a mortgage payment—even if it’s the same amount? Rising rents have made it tough on renters (who don’t have much control over that) so seriously consider getting into the market sooner to own your own home. You can enjoy not only stable housing payments but also the tax benefits of being a homeowner, both of which you’ll never receive as a renter.

• If you’re a current homeowner, focus on the big picture. Many homeowners who want to move are feeling like they “lost out” on a price they could have gotten a few months ago, so they are talking themselves out of moving. Your reason for moving needs to be more than just what your home is worth—that’s the case no matter what the market is doing.  Look at it this way, if you are selling, you likely are also buying a new home to move into. If you are worried that your current home has lost value, the home you are moving into will have, as well, so you’ll be breaking even. 

Buying Strategies for Today’s Market

If you think you’re ready to move forward with purchasing a home in the Phoenix area in the coming months, you need to be a smart buyer with some solid strategies under your belt.

It’s understandable if you can’t or don’t want to wait it out. Perhaps you just really need to move, whether it’s for a new job, new baby, or some other life change that can’t wait. 

Here are some ideas and tactics for buying a home in today’s market:

• With less demand it’s more of a buyer’s market, so up your negotiation tactics and take advantage of not feeling rushed in this market to beat out other buyers. You might be able to negotiate a lower price, agree to some concessions from the seller (such as paying for your closing costs), negotiate an inspection and even repairs.  We haven’t seen terms like these for buyers in YEARS.   

• Getting into the market now can be an advantage since you’ll avoid bidding wars and competing with more buyers. If you are waiting until interest rates decline to buy a home, so are many other people.  But you can outsmart them by buying before rates drop with the ability to negotiate better terms before demand increases. Plus, you could possibly refinance if, and when, rates drop. 

• Shop around for a mortgage to find a lender that can work with you and offer solid loan options. It’s definitely not a “one-size fits all” lending market right now. Lenders offer different rates, different loan programs, and different terms for 30-year and 15-year fixed mortgages. Some lenders are offering interest rate buy-down programs where you can pay a fee to have an interest rate that is lower than market value for a time. This can be a good situation for some buyers who want to grow into their mortgage payment. Seller concessions can be used to pay this fee for you.

• Consider an Adjustable Rate Mortgage.  Depending on how long you plan on living in this next home, one option could be an Adjustable Rate Mortgage (ARM).  Many first-time buyers these days are opting for this as a way to lower their payments, knowing that they will most likely sell or refinance before the rate adjusts. There are even some long-term ARM options for people who are planning on living in their homes for the long haul. ARMS nowadays are not as risky as they once were and are definitely worth exploring depending on your situation.

• Consider a larger down payment. This will help reduce your loan amount, and thus, your monthly payment for a 30-year fixed mortgage.

• Consider “buying down” your mortgage by paying points at closing. Buying down the rate reduces your mortgage rate and payment. This interest pre-payment is held in an escrow account at closing. Buyers are currently taking advantage of permanent and temporary (2-3 year) buy-down options. This can sometimes be funded by the seller, lender, or builder.

• Be open to refinancing your new home’s mortgage once interest rates decline. However, understand the costs of refinancing when it comes to closing costs—it could be 1 to 1.5% of the new loan amount. But remember, you still want to buy a home you can afford now, and not depend on refinancing to make it more affordable.

I’m Here to Help

As you can see, there is a lot to think about when it comes to what’s best for you in today in the Phoenix housing market.  Know that you don’t need to figure this all out by yourself, that’s what I’m here for!

Please reach out to me and we can go over your situation to see if you should wait it out or come up with a strategy to purchase a home sooner.

The earlier we meet, the better, so we can have an action plan in place. This way if rates and/or prices drop, we will be ready to move forward!