Kevin's Predictions for the Q3 Real Estate Market

As we enter Q3, low inventory, high demand, and elevated prices persist, but with a twist: We’re now navigating these challenges with interest rates hovering just below 6%.?

As an agent, the current market may feel daunting, but there is no reason to panic. Unless home prices continue to rise and access to cash decreases, no one should be overly concerned about the coming fiscal quarter or future quarters. The most likely scenario is that we’ll experience an overdue market correction, which will nudge down excessively inflated home values.?

Help Buyers Find Favorable Financing Options?

While there are reports of some potential buyers being priced out (mostly in historically expensive markets), most potential buyers are still in the game, including many of those who failed to purchase homes in 2021 due to low inventory or being outbid in multiple-offer situations. There are many things you can do to help these buyers navigate the real estate market in Q3.?

First and foremost, focus on educating buyers on creative financing options. A few potential topics to focus on include:??

• Adjustable-rate Mortgages Compared to the average 30-year mortgage rate (currently hovering around 5.8%), ARMs can be as low as 3.5%. As more potential buyers worry about being priced out of the current market, ARMs are a great way to keep them in the home-buying court. While an ARM may seem risky because the rate doesn’t hold over the lifetime of the mortgage, the risk is lower than you might assume for two reasons. First, on average, Americans own their home for 13 years (far less than the length of the average 20-30 year mortgage). Second, it is highly likely that rates will come down over the next three to five years, which means anyone locking into an ARM now may find more favorable rates waiting for them when it’s time to re-negotiate their loan.?
• Points: Buying points is another simple way to help borrowers lower their mortgage rates. Also, if a buyer doesn’t have enough cash to buy points up front, they can even negotiate to have the seller pay for the rate buy-down. While few sellers are willing to do this in a hot market, as the market cools and properties linger on the market longer, this may re-emerge as a viable strategy.
• Mortgage Assumptions: A final and less common strategy for lowering interest rates is to pursue a mortgage assumption. Although rare in some markets, mortgage assumption clauses are found in USDA, FHA, and VA loans and permit buyers to take over an existing mortgage with its current mortgage rate. Given that many current USDA, FHA, and VA loans originated during the period of historically low rates encountered in 2020-2021, this is an ideal time to help clients explore this unique option. As an agent, you might even offer to search on the MLS for these listings since listing agents often share this information.?

Help Sellers Decide Where to Go Next?

With demand for homes and prices still high in nearly all regions of the United States, it is still an optimal time to put your home on the market. The challenge for sellers is where to buy next. Given this challenge, a growing number of sellers are temporarily renting while the market settles. Given this situation, be prepared to think about the pros and cons of selling to rent, even temporarily, versus buying a new home.?

Explore Commercial Real Estate Investment Opportunities?

In Q3 and beyond, opportunities are bound to be plentiful on the commercial side of the real estate market for two reasons. First, with most businesses now settled on their future plans (in many cases, they are opting to go mostly remote or permanently hybrid), it seems likely that there will be a lot of commercial properties on the market over the coming quarter. Second, since most commercial properties hold short-term mortgages and loan forgiveness is rare on the commercial side of the market, commercial properties are also bound to be particularly hard hit by the rising interest rates. If you’re an agent interested in investing or partnering with an investor, the Q3 and Q4 of 2022 could be a great time to buy up commercial properties, especially in cash-only deals.?