THE
WASHINGTON
POST
.
SATURDAY,MAY
28, 2022
EZ
12
“In places like Phoenix, where
home prices have shot up by
more than 30 percent in a single
year, a price decline of 5 percent
or 10 percent, if it were to occur,
would not create financial stress.
Just as a stock price zooming up
30 percent and then giving up
some [of the gain] does not
cause any financial stress,” Yun
said. “Only sustained large price
declines would be trouble, as
happened during 2008 to 2012
with the mortgage implosion
and foreclosure crisis.”
Of course, if you stretch to buy
a house, only to watch its value
decline while you live there,
you’re going to be upset. Instead,
try to view your house as a long-
term purchase. It’s the place
you’re going to live, set down
roots and enjoy your life.
Hopefully, by the time you’re
ready to sell, the value of your
home will have at least kept pace
with inflation.Ilyce Glink is the author of “100
Questions Every First-Time Home
Buyer Should Ask” (Fourth Edition).
She is also the CEO of Best Money
Moves, an app that employers
provide to employees to measure
and dial down financial stress.
Samuel J. Tamkin is a Chicago-based
real estate attorney. Contact them
through her website,
bestmoneymoves.com.and 2009. In those years,
median home prices fell just
over 10 percent per year. (Home
prices fell a lot more in some
locations than others.)
Sadly, for first-time buyers
struggling to find any home to
buy, Lawrence Yun, chief
economist at the National
Association of Realtors, doesn’t
believe we’re going to see a drop
in housing prices. Why? Because
demand has far outstripped
supply, and the quality of
borrowers has remained high.
“The underwriting standards
are so strict throughout the
process, there is unlikely to be
any massive forced sales. Also,
the inventory levels are at
historic lows. Even as the
demand drops, it means a
change from 20 multiple offers
to one or two bids after 30 days
on market,” Yun said, noting that
this level of competition is much
more “normal and consistent
with 5 percent or so home price
appreciation.”
But he also acknowledges that
if the Federal Reserve hikes
interest rates, even more
aggressively than the seven
planned hikes, some housing
markets could see some minor
price declines; however, he
thinks buyers will jump in for a
“second-chance opportunity” to
be a homeowner.also charge a higher interest rate
for loans with less than
20 percent equity, so it pays to
shop around and ask as many
questions as possible to get the
best mortgage program for the
home you’re buying.
That difference is why it’s
critical to ask prospective
lenders about the interest rates,
points, fees, special loan
programs and any other costs
associated with approving your
loan.
Although interest rates have
jumped faster than most
economists expected, home
prices have also risen, adding to
the financial pressure first-time
buyers are feeling.
According to the Federal
Reserve Bank of St. Louis, the
median sales price of houses
sold in the United States reached
$428,700 in the first quarter of
2022, up from $369,800 a year
earlier. That’s a jump of
15.9 percent.
And although home price
appreciation has slowed
somewhat from the blistering
pace at the end of 2021, home
values have been growing at a
healthy pace since the end of the
Great Recession.
Some of our readers have
questioned whether rising
interest rates will cause home
values to fall, as they did in 2008with a credit score of 700 to 719
with 20 percent to put down, the
average rate on a 30-year fixed-
rate mortgage on May 19 was
5.833 percent, according to
Bankrate. For someone with a
credit score of 660 to 679, the
average interest rate was
6.66 percent. But for people with
credit scores of 800 or above,
they might have been able to
secure an interest rate of about
5.5 percent.
These numbers are a little
different from the Freddie Mac
survey, because that survey also
quotes the average number of
points paid to secure those
interest rates. The more a
borrower pays in points, the
lower the interest rate. The
Bankrate numbers don’t quote
interest rates with points, so the
average rates appear higher.
You might also want to
compare rates in your area for
jumbo vs. conventional loans
before choosing a loan product.
In some markets, the interest
rate may be lower on one type of
loan than another. (A jumbo
loan, in many markets, is a loan
that is at or under $647,200 for a
single-family home. It can be as
high as $970,800 in high-cost
areas.)
Some lenders offer better
interest rates for loans that have
a lower loan-to-value ratio. TheyMortgage interest
rates have nearly
doubled over the
past 15 months,
throwing a
curveball to first-
time buyers who
were trying to
cope with
skyrocketing home prices and
were hoping for their shot at
achieving the American Dream
of homeownership.
First-time buyers made up
34 percent of all home buyers,
according to the “2022 Home
Buyers and Sellers Generational
Trends Report” by the National
Association of Realtors. The
majority of first-time buyers are
millennials.
Mortgage interest rates have
dropped slightly. According to
Freddie Mac’s Primary Mortgage
Market Survey, the 30-year fixed-
rate mortgage averaged 5.25
percent for the week ending May
19, with an average of 0.9 points.
(A point is 1 percent of the loan
amount.) The 15-year fixed-rate
mortgage averaged 4.43 percent
with 0.9 points, and a five-year
ARM averaged 4.08 percent with
an average 0.2 points.
Here’s something most first-
time buyers don’t realize: If you
have a lower credit score, the
interest rate on your loan is
going to be higher. For someoneAdviceWhat today’s volatile market means for first-time home buyersReal
Estate
MattersILYCE GLINK
AND SAMUEL
J. TAMKINBY MICHELE LERNERMortgage rates have climbed
dramatically over the past few
months, creating an abrupt hike
in monthly payments for new
home loans. While some home
buyers may be dropping out of the
market in the hope that rates may
decline again or that home prices
will level off, buyers who are still in
the market are finding ways to
cope with a mortgage rate above
5 percent.
Here are 12 ways to adapt to
rising mortgage rates:1. Shop for a loan. Survey mul-
tiple lenders to find the best rate
on the loan program you want,
recommends Corey Burr, a real
estate agent with TTR Sotheby’s
International Realty in Chevy
Chase. Shopping around often re-
sults in the best rate.
2. Make a bigger down pay-
ment. A larger down payment re-
duces the amount you need to
borrow and therefore lowers the
associated interest you’ll pay on
the loan, suggests Morgan Knull,
an associate broker with Re/Max
Gateway in D.C.3. Ask for gift money. One
source of down payment funds for
some people can be a gift from a
family member, Burr says. “They
could pay back the money at some
point in the future, but if they’re
lucky, the relative might even for-
give the debt,” Burr says.
4. Finance the purchase with
an adjustable-rate mortgage.
More buyers are considering an
adjustable-rate mortgage (ARM)
now because they have a lower
rate for the initial fixed period,
Knull says. Burr says prospective
home buyers may want to consid-
er a 10-year ARM, which has a
slightly lower rate than a 30-year
fixed-rate loan. “Odds are that you
will have sold the house by the
time the 10-year locked rate ad-
justs,” Burr says. Borrowers who
are willing to take on extra risk or
who plan to be in a property for a
shorter period can consider a
5 -year or 7-year ARM, he says.
5. Negotiate with the seller for
closing cost credits. While not all
sellers are willing, some may be
open to negotiating with buyers to
include closing cost credits in the
sales price, Knull says. The buyers
can then apply those credits as
points to buy down the interest
rate on their loan.
6. Shop for a home that has
been on the market for longer
than others. Buyers may be able to
pay less — and borrow less — for a
home that has been on the market
for three weeks or longer, Burr
says.
7. Buy in a location with lower
property taxes and lower home-
owners association dues. To off-
set the higher monthly payment
that comes with a higher interest
rate, Knull says some of his buyers
are looking for homes in locations
with lower property taxes and
lower homeowners association
dues.
8. Widen your search area. For
people who have spent months
trying to find a home that they can
afford, I suggest they widen their
search, Burr says. Target outer
suburbs to find less expensive
properties.
9. Lock in a mortgage rate
while still shopping. Some lend-
ers are offering to lock in a mort-
gage rate even before a contract
has been signed by both parties,
Knull says. “There is a catch,
which is the rate pricing isn’t par-
ticularly cheap and a ratified con-
tract must be attained within 30-
45 days of the lock’s initiation,” he
says.10. Sell an existing home rath-
er than keep it as a rental proper-
ty. While some repeat buyers pre-
fer to keep their home as an invest-
ment, Knull says some of his buy-
ers are opting to sell now instead
to maximize their down payment
funds.
11. Buy a fixer upper. Burr sug-
gests searching for a less expen-
sive fixer upper where value can be
added over time with sweat equity.
12. Wait for a slower home-
buying season. Buy in the late fall
or over the holidays, Burr sug-
gests. “The slowest season each
year is from Nov. 1 to Jan. 15 of the
next year,” he says. “The weather is
not as nice, and most people have
the holidays on their minds. Dur-
ing this window of time, sellers
typically are very motivated to
sell.”
TOWN SQUAREConcerned about rising mortgage rates? Here’s how to adapt.ALEXSL/GETTY IMAGES/ISTOCK
A bigger down payment helps,
but it’s not the only option.