On Wednesday, July 27, The Fed raised interest rates by 75bps (0.75%). In speaking with friends and clients (many of which are now friends), everyone had similar questions like “What does this mean for me?”, “Is it still a good time to buy?”, “Is it still a good time to sell?”. I took it all in, listened, and worked toward finding answers to help alleviate their rising concerns. In times like these it is important to turn to a trusted lender, and that’s exactly what I did. The following is an excerpt from my conversation with Justin Purpero from OriginPoint Mortgage:
Q: We know The Fed is continuing to raise interest rates to fight inflation. Where do you see rates continuing to go?
A: We really believe that we will begin to see a slow down and that rates will come down in the next 9 to 12 months. The data is also showing that we will be in a recession by the end of 2022 or the beginning of 2023, which historically is good for housing price appreciation and for lower interest rates.
Q: Do you think buyers should hold off on purchasing a home until rates come back down?
A: Everything we see from experts at many different institutions believe that home appreciation will continue even through a recession. Zillow recently came out with a forecast of 7.8% appreciation expected through the course of the year. With that being said, it would be a costly mistake for a home buyer to wait for rates to come down as values continue to increase. All economic signs show expected home appreciation as well as anticipating rates coming down. You always have the ability to refinance at a later time, which I could help with for free. As I’ve said before, “marry the home, and date the rate.”
Q: What type of loan would you recommend today for a buyer?
A: We recommend taking loan options that have the lowest monthly rate and payment. With that being said, we believe an ARM loan is the best option. These are loans that are fixed for 5, 7 or 10 years—the shorter the locked-in period the lower the rate. The difference in rates from a 30-year fixed to a 5-year ARM is up to a 1.5% difference. Since we believe rates will come down in the next 9-12 months, take an ARM loan now to save money and then refinance into a 30-year fixed when rates drop.
Q: Are there other creative solutions for buyers/sellers?
A: One solution for buyers is to negotiate with sellers to buy down the rate by paying several discount points. This helps the buyer get a rate well below what is being offered in the market, with the seller paying for the discount point. This is also a great alternative solution for the seller versus just lowering the sales price.
For example, current 30-year fixed rates are around 5% without paying points. If the seller pays three points, the rate would drop to 4.25%. The cost for three points is 3% of the amount financed, i.e., one million financed would cost $30,000.
Q: How do you think this affects sellers?
A: We know that rates have continued to increase, but the inventory is still low and demand is still high, especially for coastal Orange County. The most important strategy for a seller that is looking to sell right now is pricing the home right, which is done in partnership with seasoned agents like yourself.
Justin Purpero is a top producing loan officer for OriginPoint and a Scotsman Guide top U.S. loan originator with 22+ years in the mortgage business, he has served more than 3,000 clients to help finance the home of their dreams, funding more than $1.8 billion in home loans in the process.
COMPASS nor OriginPoint are responsible for the content of this Q&A. This Q&A is intended to be informational and is based on professional opinion. COMPASS or OriginPoint suggests seeking financial advice through a qualified licensed professional.
