Today, let's address a pressing question that many of you have been asking: 

How are people managing to buy homes in the current environment of high interest rates?

The real estate market is ever-evolving, and both homebuyers and sellers have been getting creative in order to make deals happen. As an experienced real estate broker in San Diego, here are some of the strategies I’ve seen both buyers and sellers using.

1. Mortgage Rate Buydowns

One notable strategy to circumvent the affordability hurdle is a mortgage rate buydown. In simple terms, this involves the buyer (or sometimes the seller through a seller credit) paying the lender a specific sum to lower the interest rate on the mortgage.

Here’s an example — one of our clients entered the market when rates were at 7.5%. However, thanks to a generous seller credit of around $17,000 to the lender, her mortgage interest rate was brought down to 6.75%. This makes a significant difference in monthly payments and long-term financial planning for the buyer. Most buyers' main concern is the affordability of the payment, so if we can manipulate the monthly payment lower by buying the rate down, this can be a unique strategy to take. 

It’s usually more advantageous to the seller to do this in the form of a credit. If the seller were to lower the price of their property, they’d have to lower the price by $40k- $50k in order to make the same impact on the buyer’s monthly payment as a $17k credit. That said, it’s important to note that how much credit you need to buy down the rate depends on a variety of factors, including the market environment and loan amount. Check with your lender, as every scenario is different.

2. Flight to Affordability

Another approach that buyers are taking is shifting their focus and openness towards more affordable homes. Instead of spending top dollar on high-end properties, buyers are now more interested in homes at lower price points. That’s why we are seeing the higher-priced home segment cool off faster than lower-priced homes.

As interest rates increase at the fastest pace in decades, the more money you have to borrow, the harder the rate increases hit you. Thus, someone who might have been able to afford a $1,000,000 home when rates were 6% might be shopping closer to $800k now that rates are around 8%. So when buyers are shopping around, they’re trending toward more affordably priced homes right now.

3. Hidden Concessions (What Sellers Should Know)

While these strategies benefit buyers, it's essential for sellers to understand the current market dynamics as well. If you’re keeping track of data pertaining to the housing market, you may observe that the median price point has remained relatively stable. But, this data often doesn't account for concessions — financial incentives or compromises — that sellers offer buyers to seal a deal.

For example…

If you're selling a property listed at $820,000 and the buyer asks for a $20,000 credit for a rate buydown, the net you'd actually receive would be $800,000, not $820,000. However, the sales data will still report the sales price as $820,000 – ignoring the concession you've provided. 

Why is this important? 

Because when seller’s go to list the home, and they look at comparable sales in order to understand what their home might be worth, the sales price will look stable. Yet, there’s more at play. As a seller, you need to take a deeper look at the specific submarket and understand what kind of concessions, if any, are needed in order to entice buyers to actually write offers. This also serves to make the point that the market may be cooling faster than the headline numbers suggest. 

Sellers need to be aware of this phenomenon and strategize accordingly.

4. Changing Leverage in Housing Deals

As we're moving into an environment in the housing market in San Diego where buyers are gaining slightly more leverage, it's crucial for sellers to be well informed. Offering concessions, like seller credits for rate buydowns, might become more common, and sellers should prepare for this kind of negotiation.

Things are ever-evolving in the housing market, so both homebuyers and sellers need to stay informed about what’s going on so they can have the best chance of getting a good deal done.

5. Leaning on a Realtor with San Diego Housing Market Expertise

To navigate this complex housing market landscape, it’s arguably more important than ever to work with a real estate professional with a solid real-time understanding of the San Diego housing market. Smart homebuyers and sellers know that having a "boots on the ground" perspective will help them make the most informed decisions possible so they can get deals done that are a win.

High mortgage interest rates are indeed shaping new behaviors in the real estate market, but they're far from insurmountable obstacles. Both buyers and sellers are finding ways to adapt, ensuring that deals not only happen but also make financial sense for both parties.

Whether you’re looking to buy a home or sell a home, don’t be afraid to get out there. There are good deals to be done. 

Brent Edwards (aka Brent the Broker) is a residential real estate agent and Realtor in San Diego, CA who helps clients buy and sell homes in San Diego, California and all surrounding areas. Brent is a highly-recommended Realtor in San Diego by family, friends and past clients. Call Brent today at 619-550-8070 if you have any questions about real estate in San Diego or you'd like to buy or sell a home.

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