The question that many potential buyers are asking themselves right now is: should I wait for rates to drop before I buy? Higher interest rates have certainly made monthly payments higher and challenged overall affordability, however it is important to consider creative financing options and what the impact on prices will be once rates lower.

Experts predict rates to decrease over the next 12-18 months. In fact, we have seen rates drop half a point over the last 30 days. Currently, the 30-year conventional rate is hovering about 7.5%. We saw a correction in prices when rates jumped by a point and crested 6% in mid-2022. Since Dec 2022, prices found their bottom, and price appreciation started happening again. Year-to-date, the average interest rate has been around 7% and prices have not been in a free fall, they have grown and remain stable.

Just like the correction that happened in 2022, it is safe to say there is a correlation between prices and rates. If the experts are correct and rates fall over the course of the next year or so, we should anticipate prices to increase. That is what hangs in the balance when making the decision of whether to buy now or later. The example to the right shows the effect that price appreciation will have despite rates being lower. It was not that long ago that we were experiencing bidding wars where homes escalated in the double digits. As you can see, the higher price results in a higher payment even with the lower rate.

If one is able to afford a purchase now with today’s rate, they can refinance when rates go down and save themselves a lot of money on their payment while keeping a fixed price. Additionally, if a buyer can secure a rate buydown, such as a 2-1 buydown, the higher rates can be overcome and a refinance can fix the rate when the rates drop.

Here is an example: let’s say you are shopping for a house and have the same $800,000 budget and a 20% down payment with today’s rate of 7.5%. The monthly principal and interest payment would be $4,475.00. You could do a 2-1 buydown (2-points lower in year one and 1-point lower in year 2) which would have your payment in year one be based on an interest rate of 5.5% with a monthly principal and interest payment of $3,534 – a savings of $841.00 per month. For year two, the monthly principal and interest would be based on 6.5% resulting in a monthly payment of $4.045.00, a $430.00 per month savings. The total savings in monthly payments with the 2-1 buy-down over the two years would be $15,252.00.
 
The roughly $15,000 in monthly payment savings is paid upfront at closing and in some cases paid by the seller. The buyer still needs to qualify based on the 7.5% interest rate as the payments will convert to the payment based on the 7.5% in year three moving forward. The strategy here is to never have the payment increase to 7.5% because the buyer plans to refinance when rates come down, and will permanently fix their rate below 7.5%. A bonus is that if the entire $15,000 credit has not been used yet, in some cases those funds can be applied towards the refinance.

You see, there are many options to consider when a buyer is balancing rates, prices, payments, and their desire to make a move. I understand that I am in the business of helping people navigate big life changes while ensuring their financial investment is sound. I felt it was an important message to share these examples in case you or someone you know was thinking about making a purchase but was feeling confused or stifled by the current rate environment. If you want to learn more or need a referral to a reputable lender, please reach out. It is always my goal to help keep my clients well-informed and empower strong decisions.

On January 1, 2024, major changes to the Law of Agency will go into effect. These changes result from the real estate industry in the state of Washington wanting to elevate the level of transparency and consumer protection surrounding buyer representation. Senate Bill 5191 was voted into law requiring adjustments in how brokers operate when working with buyers.
 
Before I get into the details of the specific changes below, I wanted to explain why these changes are being made and the benefits to the consumer. It has been a long time coming for the buyer side of a transaction to be better defined with regards to representation, compensation, and the level of commitment the buyer and broker have to each other.
 
The seller side of a transaction has always required a separate contract (a Listing Agreement) that outlines these three important items. It has always been a bit shocking to me that the state did not require such a contract for a buyer and broker. Under new legislation set to take effect on January 1, 2024, buyers and brokers will be required to have a signed contract, a Buyer Brokerage Service Agreement (BBSA). This new contract will provide a consistent and professional guidepost to help everyone understand the buyer and broker relationship, just like a seller and broker do when they enter into a listing agreement.
 
The opportunity to set clear expectations through this new agreement and give both parties the choice to willingly agree to them will help buyers understand how their broker gets paid, cover industry norms, dig into who represents who and where that advocacy starts and ends, and communicate a transparent commitment to each other. I think this is powerful and meaningful for both buyers and brokers. Buying a home is a serious matter and outlining via a contract what is mandated by state law both clarifies and formalizes the relationship for both sides. Most importantly, it is a choice of who the buyer and broker enter into a contract with. The conversations that will surround these choices will be empowering for all parties involved.

Let’s face it, buying a house is not an easy task, nor is guiding someone successfully through the process. It is about time the law follows the call of duty and requires a clear explanation of how buyer representation works and encourage a clearly communicated partnership. I’ve always believed that having consistent processes in my business leads to a better outcome for my clients. This advancement for our industry will elevate these processes and in turn, raise the bar.

I plan to embrace these changes, as I see them as a benefit to my clients and our industry. The clarity these agreements provide will lead to fewer surprises, stronger bonds, and higher efficiency. I am prepared and excited to embrace this as a benefit for all parties involved in a real estate transaction.

Key Revisions
For years, real estate brokerage firms were only required to enter into written agreements with sellers, not buyers. Beginning on January 1, 2024, the Agency Law will require firms to enter into a written “brokerage services agreement” with any party the firm represents, both sellers and buyers. This change is to ensure that buyers (in addition to sellers) clearly understand the terms of the firm’s representation and compensation.
 
The services agreement with buyers must include:

• The term of the agreement (how long the buyer and broker are committed to working together);
• The name of the broker appointed to be the buyer’s agent;
• Whether the agency relationship is exclusive or non-exclusive;
• Whether the buyer consents to the individual broker representing both the buyer and the seller in the same transaction (referred to as “limited dual agency”);
• Whether the buyer consents to the broker’s designated broker/managing broker’s limited dual agency;
• The amount the firm will be compensated and who will pay the compensation; and
• Any other agreements between the parties.

All of these options are outlined in the new BBSA contract and will be presented and discussed before deciding to embark on the home-buying journey together. It will eliminate any guesswork and encourage a strong work relationship surrounding an incredibly important task. This will help my clients understand my level of commitment and professionalism, and how I help my clients achieve effective results.

I have provided the links to the new Agency Pamphlet and the revisions to Senate Bill 5191 below for your review. If you have any questions or are thinking about making a purchase in 2024, please reach out. It is always my goal to help keep my clients well-informed and empower strong decisions. I am happy to bring this information to you ahead of the change, so you are well prepared should you have any real estate changes coming your way in the future.


Revised Pamphlet. The pamphlet entitled “Real Estate Brokerage in Washington” provides an overview of the revised Agency Law.
Revised Agency Law. Substitute Senate Bill 5191 sets forth the revised Agency Law in its entirety.

The video below from Matthew Gardner, Windermere’s Chief Economist, refers to the effects of constricted inventory levels on the national housing market in a higher interest rate environment. Review the localized numbers that I gathered that pertain to King and Snohomish Counties and then check out what he has to say about the national trends.

Overall, inventory has been tight in 2023! Many people made moves in the pandemic-fueled market and are deciding to stay put. They utilized the lower interest rates to secure their long-term home and don’t see a need to move anytime soon. Did you know the average person stays in their home for 10 years?

Others are not completely satisfied with their homes but feel attached to the lower rate and are pushing through the discomfort until rates settle. Some are deciding to come to market because their homes do not fit their lives anymore and some are bucking the rates and getting creative with financing. The buyers working the creative financing route with rate buy-downs will be rewarded when rates lower and prices go up.

Year-to-date new listings in King County are down 30% over 2022 and down 37% in Snohomish County. Closed sales are down 27% over 2022 in King County and down 27% in Snohomish County. Even though there have been fewer new listings year-over-year, the closed sale percentage is tracking more favorably which demonstrates buyer demand. This is why inventory is tight. In August 2023 there were 1.3 months of inventory in King County and 1.1 months in Snohomish County. This illustrates a seller’s market.

Closed sales peaked in 2021 in both counties at 20,132 in King County and 8,663 in Snohomish County. As we venture away from these outlier pandemic years, consumers are wrapping their heads around the changing environment. Year-to-date, King County has had 16,069 closed sales and 5,344 in Snohomish County. Year-to-date, King County is pacing slightly higher than 2019, which was a normal market prior to the pandemic and Snohomish County is lagging behind by just a bit.  

The pace of inventory has helped stabilize prices and created price growth since the start of 2023. Buyer demand exists because people’s lives change and we have the Millennial generation out in full force. If your life is leading you to consider a move, please reach out. Please do not rely on the noise in the media, they will lead you astray.

I can help you dig into the data and devise a plan that relates to YOUR life. With equity levels astoundingly high (over 50% of homeowners in the U.S. have over 50% equity), moves are being made with great success. For buyers, the rates can be overcome with some creativity, lived with for now, or you can set a benchmark for when you’re ready. If you are curious about how today’s market relates to your goals or want to make a plan for the future, let’s talk! It is always my goal to help keep my clients informed and empower strong decisions.

Lately we have talked about life changes leading to real estate moves. Sometimes moves are brought on by joyful advancements in life and sometimes they are motivated by hardship. Then there are times when your actual house just doesn’t fit your life anymore and it is time for something different. Whatever might be calling someone to make a move, they also have to assess the affordability.
 
There are three aspects to affordability: price, interest rate, and income. Price and interest rate will determine your monthly payment, and your income will provide the means to maintain and build your investment. One way I have been able to help my clients strategize affordability with higher interest rates are some creative financing options.

Most often a home buyer will procure a home loan with a 30-year term and the current interest rate. In the month of August, the 30-year conventional interest rate averaged 7.25%. While 7.25% is reflective of the average over the last 30 years, it is 2-3% higher than what we have experienced over the last 5 years. According to several experts, rates are predicted to decrease as we finish out 2023 and head into 2024. That also means that it is very likely prices will increase when that happens.
 
I have helped some of my clients overcome the higher interest rates and secure today’s prices by helping them arrange with their lender an interest rate buy-down. Sometimes we have even been able to get the seller to financially assist in paying for the buy-down. There are two types of buy-downs: a permanent buy-down and a temporary buy-down.
 
A permanent buy-down requires about 3% of the purchase price to buy the rate down by a point for the 30-year term of the loan. A good rule of thumb to remember is that every 1-point in rate equals 10% in buying power. For example, if the rate is 7% and you are qualified for a home at $800,000, if the rate went down by 1 point to 6% you could now afford $880,000 and have a very similar payment. Another way to look at this is simply the monthly payment itself. An $800,000 purchase with 20% down with a 6% interest rate would save a buyer $420.82 a month vs. the payment at 7%.
 
A permanent buy-down is a useful tool and so is a temporary buy-down. It is actually one of the most powerful tools in today’s market. It costs far less than a permanent buy-down and with rates predicted to decrease over the next 12-18 months as inflation settles, you could easily find yourself in a position to refinance.
 
Here is an example, let’s say you are shopping for a house and have the same $800,000 budget and a 20% down payment with today’s rate of 7%. The monthly principal and interest payment would be $4,257.94. You could do a 2-1 buydown (2 points lower in year one and 1 point lower in year 2) which would have your payment in year one be based on an interest rate of 5% with a monthly principal and interest payment of $3,435.66 – a savings of $822.28 a month. For year two, the monthly principal and interest would be based on 6%, resulting in a monthly payment of $3,837.12, a $420.82 savings. The total savings in monthly payments with the 2-1 buy-down over the two years would be $14,917.18.
 
The roughly $15,000 in monthly payment savings is paid upfront at closing and in some cases paid by the seller. The buyer still needs to qualify based on the 7% interest rate as the payments will convert to the payment based on the 7% in year three moving forward. The strategy here is to never have the payment increase to 7% amount because the buyer plans to refinance when rates come down and will permanently fix their rate below 7%. A bonus is that if the entire $15,000 credit has not been used yet, in some cases those funds can be applied towards the refinance.
 
This strategy has been effective in helping buyers secure a monthly payment that is more affordable so they can make a move now based on life’s needs and wants. It also helps them secure today’s prices. If we find a home that has had a little longer market time, a home seller is likely to assist with the $15,000 credit vs. reducing their price by 3% to accommodate a lower payment for 30 years. The temporary assistance in reducing the payment for 1 to 2 years is a viable tool for both the buyer and seller to create a win-win.
 
I felt it was important to bring these options to light and to encourage people to not just take today’s market at face value. Creativity, collaboration, and calm have led to some of the most rewarding sales this year for both buyers and sellers. When people logically work together to accomplish moves in an environment that seems difficult, they find success. Ultimately, I am here to help my clients match their real estate to their lives despite where the rates are today.
 
I love rolling up my sleeves and creating a plan to help my buyers and sellers accomplish their goals. It is my mission to help keep my clients informed and empower strong decisions. If you or someone you know are curious about how today’s market matches your needs, please reach out.