Impact of Rising Rates on Homebuyers' Options in Long Island NY

George Diamantakis, Snr Loan Officer - Phone: (516) 860-9978

George Diamantakis shares his analysis of the residential real estate market in Long Island, NY and the choices faced by home buyers in the current environment of rising interest rates and home values that are still high in mid 2022.

Phil: I'd like to start with a question which is relevant in the, in the current environment. So we've seen interest rates rising, uh, and that's not a joke. Um, so we, we know that there is kind of a slowdown in the level of activity. Um, however, um, it, it, it just does not boil down to a problem of interest rate and there is like choices to be made by the home buyer. So can you, uh, tell us about the, the relevance of interest rates in regards to the equity in the house and the value of the, of the house?

George: Sure, absolutely. So, I mean, you can look at it a few different ways, right? So no matter what, when you're buying a home, there are, there is fear, right? And buying a home is scary. And a lot of people are saying, rates up, values up. What am I doing? Why, why would I buy a house and put myself in a, in a bad financial position? But if you look historically, values on homes have been slightly increasing year over year. Whenever we have a bubble, let's say, which a lot of people thought we were in the last few years with really high values on the homes, increasing like crazy increasing values in the homes and really historically low. And that's a, a funny saying that you like to hear, right? Historically, low mortgage people, I've been saying that for many years now, but these were actually years of historically low rates, right?

The reason fours were very low back in the day, but I mean in the twos that was unheard of. And in turn, values went up. Now, people who purchased the last few years, yeah, they got really lucky with interest rates being low, but their values were really high. So they have no opportunity down the line to refinance. Now, if you are on the fence or in the brink of buying something and you're scared based on the current interest rate market, think you have to think of it this way. Now that they values in the homes are dropping, they may not be dropping where people think they're gonna be dropping, but even if they drop 5%, 10%, you know, I don't depends what area you're in. But even if they drop a little bit and then you purchase with a very high interest rate compared to what it was the previous years, I mean, what's very high, I mean everyone has different perception, but you will leave yourself now at a lower valued home with a high interest rate that you have an opportunity to refinance out of.

So you're gonna get the best of both worlds. You might not get a rate in the twos, but hey, if you hit high threes, low fours compared to a 6% rate, I think you're saving some money there and you have some equity like you said. So yeah, you now have a lower value in the house with a higher interest rate and the opportunity to refinance at a later time. And yeah, refinance costs a little money, but long term most people are buying their end homes. They're saving a lot of money for the term of the loan, whereas that refinance is not really gonna be relevant. The cost of it is not gonna be relevant, but the savings will be. Um, and then if the value drops in the next, you know, this year and next year through the years again, that that value is gonna start to creep up again. And then you have that equity and you're gonna have your lower interest rate and you're gonna have a really good deal in your hands.

Phil: Right, Exactly. Um, so talking about, uh, qualification today, um, we had a discussion before we started the show. There's no credit tightening, there's no increase in the bank's, uh, requirements now, what can disqualify you today disqualify you today for, uh, a loan in this particular period?

George: Sure. So, you know, we have to be creative now because when you're qualifying people in an increasing rate market, you can't qualify them at the current interest rate. When we qualify people in our system, we have to escalate it up a little bit for qualification purposes, not necessarily meaning that the client's gonna get that because you wanna make sure the client's covered can afford the property, um, at the current market and above it. So that, let's say they're in a transaction and the rates are jumping, but you can't close yet and you're not locked. You wanna make sure the client can still purchase at home and they're aware of where the market's going. Of course. Um, so disqualification, it's not like we're getting more strict, but with the rates going up, things are getting a little more expensive payment wise. So if the taxes are the same, the insurance is the same, and let's, if there is PMI on the loan, that's the same, what's changing the principle and interest payment because the rates would be escalating up a little bit and we have to be prepared for that.

So if you're not prepared for that, I mean, maybe you're not working with the right person, but a lot of loan officers, you know, in this type of market, this is almost an unheard of market. So you have to really be prepared. And then when you prepare the client, there's less, um, I guess discrepancy in where they thought it would be or what it is. Um, and you know, it's, it's not a good more, it's not a good feeling as a buyer, um, not being prepared for what is to come. And a lot, you know, there's a lot of chatter out there. If the rate's gonna go up more, I believe that they're gonna go up a little, a little higher. There's a lot of other chatter saying that we may have bottomed out already with the market. I don't know. I mean, you know, we don't have a crystal ball. You, you always have to be prepared for the worst. Um, we want optimism and we want the best for our clients, but we have to think qualification wise, a little bit pessimistically because we need to be cautious and make sure the client is aware and qualified and, and everything.

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