They’re Shopping for a Payment.

One of the biggest mistakes I see buyers make is getting fixated on the price of the house.

Is the market going up?

Is it going down?

Should I wait for prices to fall?

What if interest rates go higher?

What if they come back down?

People read a headline, hear something on television or see a post on social media and start making decisions about one of the largest investments of their lives based on a single piece of information.

Sales professionals can fall into the same trap.

We report the headline instead of helping the client understand what the headline actually means to them.

A recent example really caught my attention.

Earlier this year, the average 30-year fixed mortgage rate was around 6%. By early September, it had moved well into the upper 6% range.

That doesn’t sound like an enormous difference.

But look at what it can do to buying power.

Take a buyer comfortable with approximately $2,500 per month in principal and interest.

At roughly 6.01%, that payment supports a mortgage of about $416,000.

At 6.71%, it supports only about $387,000.

That’s almost $30,000 in borrowing power gone because of a 0.70 percentage-point change in the interest rate.

Or look at a $400,000 mortgage.

At approximately 6.01%, principal and interest is about $2,400 per month.

At 6.71%, it’s about $2,584.

About $183 more per month.

That’s what caught my attention.

The buyer sees a rate move of less than one percentage point.

What they may not see is what that relatively small movement can do to the amount of house they can afford.

That’s something a professional should be explaining.

Price Is Only One Part of Affordability

I’ve spent more than 40 years in real estate, and I’ve watched consumers try to time markets over and over again.

They wait because they think prices might fall.

Then rates rise.

Or prices don’t fall.

Or the inventory they want disappears.

Or their circumstances change.

I’m not suggesting everyone should buy a house regardless of the market. That’s ridiculous.

I’m saying something much simpler.

Buy what you can afford when buying makes sense for your circumstances.

Then understand all of the variables affecting that decision.

Price matters.

Interest rate matters.

Down payment matters.

Taxes and insurance matter.

Inventory matters.

Negotiating leverage matters.

How long you expect to own the property matters.

Your personal financial situation matters.

And the alternatives available to you matter.

A professional should help the customer put those pieces together.

Stop Chasing Ghosts

Buyers can spend years chasing a market they think is coming.

They’re waiting for the crash.

Waiting for rates to fall.

Waiting for the perfect house.

Waiting for sellers to become desperate.

They’re chasing ghosts.

The problem is that changing one variable doesn’t mean the entire equation becomes better.

Suppose home prices fall 3%, but mortgage rates rise enough to reduce your purchasing power by 7%.

Did housing really become more affordable for you?

Maybe not.

Now consider the other direction.

Suppose rates fall and thousands of buyers who have been sitting on the sidelines come back into the market.

You may have more purchasing power.

But you may also have more competition.

Sellers may become less willing to negotiate.

Multiple offers may return in a particular price range.

Again, the answer isn’t contained in one number.

Interest Rates Affect Buying Power. Inventory Affects Negotiating Power.

I think that’s a distinction worth teaching.

Interest rates influence buying power.

They help determine how much house a financed buyer can afford at a particular payment.

Inventory influences negotiating power.

When buyers have plenty of comparable properties to choose from, sellers generally face more competition for those buyers.

When inventory is scarce, buyers have fewer alternatives.

Neither tells the whole story.

Put them together and you begin to understand the environment in which the client is actually making a decision.

That’s what consumers need from us.

They can find today’s mortgage rate themselves.

They can find the asking price.

They can look at listings all night long.

Information isn’t the problem anymore.

Understanding what the information means is where the professional earns their value.

Waiting Is a Financial Decision Too

This part of the conversation is particularly timely.

Interest-rate expectations have changed, and there is currently a real possibility of additional Federal Reserve tightening. That doesn’t guarantee mortgage rates will continue higher. The Federal Reserve doesn’t directly set mortgage rates, and economic forecasts change as new information arrives.

That’s exactly why I don’t think professionals should tell people:

“You better buy now because rates are definitely going higher.”

We don’t know that.

But I would tell a financially qualified buyer something different:

If you’re ready to buy and you find a property that works for you, understand what waiting could cost you in purchasing power.

A buyer waiting for a $20,000 reduction in price could potentially lose $30,000 or more in borrowing power if financing costs move against them while they’re waiting.

On the other hand, rates could come back down.

Depending on the loan, the costs involved and future circumstances, an owner may have an opportunity to refinance later.

What you can’t do is go backward and purchase the house you passed on after somebody else owns it.

That’s why I don’t like making housing decisions based on predictions.

Make the decision based on what you know.

What can you afford today?

What inventory is available today?

What negotiating leverage do you have today?

How long do you expect to own the property?

Does owning it serve your family’s financial and personal goals?

And what is the potential cost of waiting?

Waiting isn’t the absence of a decision.

Waiting is a financial decision too. It has risks, costs and consequences just like buying does.

A $10,000 Price Reduction May Not Solve the Problem

This is equally important when we’re representing sellers.

Imagine a seller at $525,000 whose home isn’t selling.

They say:

“Let’s reduce it $10,000. That should get somebody off the fence.”

Maybe.

But what problem are we trying to solve?

With 20% down, a $10,000 price reduction reduces the buyer’s mortgage by about $8,000.

At rates in the upper 6% range, that changes principal and interest by only around $50 per month.

Meanwhile, a relatively modest movement in mortgage rates can change the payment on the same house by considerably more than that.

The seller sees:

$10,000 price reduction.

The buyer experiences:

monthly affordability.

Those aren’t the same thing.

A professional needs to understand the difference.

Buying a Home Is Deeper Than Today’s Price

There’s another part of this conversation that gets lost when everybody becomes obsessed with timing the market.

People don’t receive the benefits of owning real estate they never buy.

They don’t participate in future appreciation on a house they don’t own.

They don’t build equity by paying down a mortgage they never took out.

And they don’t receive any potential tax benefits associated with qualifying homeownership expenses they never incurred. Tax consequences vary by taxpayer and law, of course, so clients should get tax advice from a qualified professional.

None of that means real estate always appreciates.

It doesn’t.

It doesn’t mean every house is a good investment.

It isn’t.

And it certainly doesn’t mean someone should stretch beyond what they can reasonably afford because somebody told them real estate always goes up.

That’s salesmanship without judgment.

The better question is:

Given my finances, my needs, my time horizon, today’s financing costs, the available inventory and my negotiating position, does buying this property make sense for me?

That’s a much more intelligent question than:

“Do you think prices are going down?”

That’s the Professional’s Job

This is where I think our industry has an enormous opportunity.

Stop giving clients more headlines.

They already have plenty.

Help them think.

If rates move, show them what happened to their purchasing power.

If inventory increases, explain what that might do to their negotiating leverage.

If prices soften, calculate whether the lower price actually offsets the financing cost.

If they’re thinking about waiting, show them the potential benefits and the potential costs of waiting.

If they plan to own the house for ten years, help them understand why today’s asking price isn’t the only variable that will determine whether the purchase ultimately works for them.

And when the numbers don’t make sense, have the courage to tell them that too.

That’s professional salesmanship.

The public has more real estate information available today than at any point in my career.

What they still need is someone who can help them understand which information matters.

Price tells you what the house costs.

Interest rates help determine what you can afford.

Inventory helps determine how much negotiating power you have.

And professional judgment helps put all three into perspective.

Don’t tell your clients what the market is going to do.

Don’t help them chase headlines.

Help them understand the consequences of the choices available to them today.

Then let them make a good decision.

That’s Time Tested Mastery.