The Fed recently announced yet another interest rate hike, making borrowing more expensive and pushing the prospect of purchasing a new home out of reach for an even greater share of Americans. At the same time, inflation is easing and the economy is showing unanticipated strength, with strong employment numbers and greater than expected GDP. All this means one thing for current and prospective homeowners – they shouldn’t expect the Fed to begin lowering rates any time soon.
Though this would typically signal a time for panic across the residential real estate profession, those who can focus on servicing their clients with a mind for the future will be well positioned for whenever the economics for home buying become more favorable.
Double down on relationship building
High mortgage rates mean those on the margins of potential homeownership are moved one step further away from their goal. It also means those currently in homes — some of whom purchased or refinanced through the historical low interest rate period after the pandemic — are disincentivized to buy a new home at current rates. Furthermore, for those looking for their next home, higher interest rates effectively reduce their buying power, translating literally to fewer and fewer square feet, bedrooms and bathrooms.
Real estate teams may lament homeowners’ waning interest in buying (or selling) into this market. But there are things real estate pros can do to make productive use of the moment, and double down on relationship building with new and existing clientele.
Educate and update
Stay connected. One of the biggest mistakes real estate professionals can make, regardless of the market, is not staying in touch with clients. Real estate can be a transient profession with many newcomers flocking to the industry when times are good, and falling out when times are tough. Times are decidedly difficult right now, reducing deal flow and overall revenue potential. Many will see the moment worthy of a pullback in their efforts, focusing on clients with a greater, real or perceived, likelihood of being able to transact. That state of mind is an absolute mistake.
Provide clients with market updates. Sharing recent news and its practical implications with current and prospective clients is an excellent way to check in and ensure they have a strong understanding of what impact rate increases, strong economic numbers and more will have on their immediate transaction prospects. Whether buying or selling a home, real estate pros who help their client base to have a clear understanding of what is happening, why, and what impact it will have, take advantage of a unique trust building opportunity. They provide clients with extra reassurance that they are indeed receiving good counsel on their (eventual) property endeavors.
Track and report on falling prices. High mortgage rates hurt home buying and selling prospects. However, for some, higher interest rates can bring home prices down just enough to account for the added cost of a higher interest rate. In some scenarios, if a prospective buyer can carry a more expensive rate, they may secure a home at a lower price, and then aim to refinance when rates have improved.
Understanding and activating home equity. Hikes in interest rates also affect the price of revolving debt. Most, if not all, revolving credit moves with the prime rate; meaning, it just got even more expensive to carry a balance from one month to the next.
Real estate professionals can educate clients on the prospect of leveraging the equity they have in their current home to consolidate consumer debt through home equity based products like HELOCs, home equity loans or other home equity based products, that tend to have better terms than other forms of debt. Home-equity products also provide a path to financing home improvement projects that can raise the value of a home, while clients wait for the environment for putting a home on sale to improve.
Keep the door open. Financial situations are constantly in flux. Did a client recently get a new job? Did a relative pass away leaving them with a large inheritance? Did your clients just become empty nesters? New occurrences in life bring about different new ways to view possibilities. No one wants to buy a home for more money than they have to, but new circumstances can open the door to revisiting property aspirations that weren’t reasonable conversations just moments before. Keeping an open door to those who have new circumstances will help real estate pros adjust their approach for specific clients.
Unprecedented and unfamiliar economic cycles like the one we are in today provide a great deal of room to drop the ball or lose interest. Those real estate teams that refocus on the basics of building trust through credible counsel and insight will see more deeply engaged client prospects, and eventually, transactions that can keep the business afloat during a time when the entire industry is facing headwinds.
Jeff Levinsohn is CEO and Co-Founder of House Numbers, a service to help homeowners gain financial independence by understanding and optimizing their largest asset — their home.