- Dottie Herman has been in real estate for 30 years and says a 7% mortgage rate is average.
- She doesn’t believe mortgage rates will return to 3% because that is very low.
- Buyers have more negotiating power, can adjust their terms, and have options for mortgages.
Mortgage rates have just about doubled from where they were this time last year. As of Monday, the average 30-year fixed was at 6.95%, the highest since 2002.
As debt becomes more expensive, would-be home buyers are being deterred from the market. Existing-home sales in the US fell by 1.5% in September, the lowest since May 2020.
For Dottie Herman, the vice-chair of Douglas Elliman, it’s about perspective. If you zoom out and look at where interest rates have been, you’d realize that historically, 7% is just about average, she noted.
“I’ve been in the business for 30 years and I have never seen them at 2.5%, 3%,” Herman said of last year’s mortgage rates, which hit record lows as the pandemic crushed the economy. “So that was an anomaly and I almost think it’s really unfair to compare the interest rates now to when they were 2.5%.”
As of 2017, Herman had a net worth of $260 million, making her the richest self-made woman in US real estate according to Forbes. She told Insider she recalled paying about 14% or 15% on an adjustable-rate mortgage when she first started off.
“This is just an opinion, obviously: I do not think that they’re going to go back to 3%. I really don’t,” Herman said.
Her advice: If you don’t plan on moving for a few years, it may still make sense to purchase a property, especially because rents are up, she noted.
“I don’t say this because I’m in real estate but I always tell people real estate is not like a stock,” Herman said. “You could pay $200 for a share and then tomorrow it could be like $50. Homes don’t really come down that much. I mean it’d have to be something catastrophic for them to really come down. And it’s not like rents are cheap now. I mean rents are at their all-time highs.”
The average price of rent for primary residence in US cities has continued to steadily climb since 2008, according to the Consumer Price Index (CPI) for all urban consumers. As of October, the median rent for a one-bedroom apartment in major cities like New York, Boston, and San Francisco ranged between $3,020 to $3,860, according to Zumper, an online rental platform.
The reality is, you can never perfectly time the market, Herman said, adding that there are always trade-offs. If you want to buy a house to live in or as an investment, you need to be out there looking at inventory.
Buying at current rates
First, keep in mind that the advantage that comes with higher interest rates is that there’s less competition, which means buyers have more negotiability. A year ago, owners could have 15 offers on a property. And in many instances, if you didn’t have an all-cash offer, you could forget about it, she added.
Second, consider the terms of a contract because it could help you save money or give you an upper hand over other offers. The more you can find out about a seller, the better off you’ll be negotiating the terms, she added.
Sometimes a seller purchases a new property and they have a certain amount of time to sell their old property, or they’ll need to take a bridge loan, which can be very expensive, she noted. They might also have an unforeseen event in their personal lives that speeds up their timeline to sell. Being able to accommodate a seller’s timeline may put you at an advantage, even if your offer is lower than another buyer’s, she noted.
Third, put your best terms first. When you present the offer, start with your strong points. For example, if your down payment is high, highlight that. If your offer is higher, then lead with that. This reduces the chances of your offer being turned down, especially if other parts of your offer may be unfavorable, she added.
The fourth thing may be something your broker can do, but human interaction is important. It might sound soft and mushy, she noted, but if someone has lived in a home for a long time, it matters to them who they give the property to. People who love their homes want someone to have it that’s going to love it the same way, she added.
“I would always ask the seller, whoever is selling the home, to walk me through the home and tell me what they loved about this home that made them buy it,” Herman said. “Because now you get the seller talking to you, you have some kind of rapport. And the seller is always happy to talk about what they loved about the house. And I think rapport and how you negotiate — you have to have a broker that knows how to negotiate — is all part of it.”
Finally, You need to be speaking to banks and loan officers to understand your mortgage options.
Mortgages aren’t a one-size-fits-all approach, and depending on your circumstances, the best option will vary, she noted. There are many types of mortgages that could fit your needs. Herman pointed to veteran home loans as an example, which could have lower interest rates than conventional loans and require no down payment if you qualify. If you’re a first-time buyer, you could qualify for a Federal Housing Administration loan (FHA), which requires a lower down payment but could still provide competitive interest rates.
If you’re an investor looking to buy something for a couple of years and then sell it, Herman recommends sticking to an adjustable mortgage rate. This will allow you to readjust when interest rates come back down.
If you do have an opportunity to land a mortgage rate at 3%, then obviously you should take it for 30 years, she noted.
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