7%! Is It the End of the World or a Missed Opportunity?

Recent interest rate hikes have brought mortgage rates solidly into the 7% range, and we are looking at rates in the 8% range for second home and investment properties. As Kyla De Marzio of Guaranteed Rate put it, “It’s often a psychological shift for consumers when the next full percentage threshold is reached. For example, going from 6.25% to 6.375% or 6.625% doesn’t have the same sticker shock to consumers as going to *7%*. It’s the first number they see, is it a 6 or is it now a 7? We are pretty much at that precipice given last week’s closing rates. Then, it settles in so good news is the shock doesn’t last forever, and it becomes the new standard.”

To keep things in perspective, take a look at this historical data from Ken Weiss of Diversified Funding:

• Historical Perspective: Since 1971, when Freddie Mac started keeping records, the average mortgage rate has been 7.74%. This helps us set the stage when explaining rate dynamics to clients.
• The Lowest Dip: January 7–13, 2021, saw rates for a 30-year fixed-rate mortgage at an ultra-low 2.65%. This dip was primarily influenced by the pandemic’s economic impact.
• Peaks of the Past: In contrast, the early ’80s experienced a peak with rates in October 1981 reaching a staggering 18.63%. It’s essential to remind clients of these extremes when they’re apprehensive about today’s rates.
• Today’s Landscape: While higher than the 2021 lows, it’s well below historical highs and the average, presenting a favorable environment for purchases.

We have had a couple of buyers decide to take a “break” from their search based on the latest increase. What the numbers show is that, despite higher rates, buyers who forego buying now will miss out on the appreciation they could have gained if they decide to wait. In almost all of our key markets, home sale prices are up between 3% and 13% YTD over 2022. There are still serious buyers out there struggling to find homes with very few to choose from. As we know, if you buy when others are not in the market, you stand to gain the most. When rates come down and everyone jumps into the game, the moment will have been lost.

How can you navigate the market given this new normal? Let’s talk about your plans and focus on what’s important to you. Life changes, goals, and your happiness should drive your decision, not a few percentage points that can be refinanced away when the opportunity arises. Let’s discuss how we can capitalize on the opportunity that abounds right now. The smartest investors buy when others are on the sidelines. Feel free to reach out to me!

The Allison Ziefert Real Estate Group is a top-producing real estate team based at Compass in Short Hills, NJ. We are local market experts, specializing in real estate and homes in Maplewood, South Orange, Millburn/Short Hills, Montclair/Glen Ridge, West Orange, Morristown, and the surrounding NJ towns. We’ve also got you covered coast to coast with the best connections to top agents around the country in any market you are exploring. We are driven by earning great testimonials and referral business from happy clients. You can read our reviews here.