Interest rates might be two little words real estate brokers across the country despise, but not so much in Steamboat. The demand for real estate remains strong, with prices holding steady due to limited supply and cash buyers who aren’t affected by interest rates.
After unprecedented demand for real estate in the Yampa Valley in recent years, things in Steamboat have calmed down, and it seems that the fear over rising interest rates has settled down too. “Overall interest rates have come down,” says Kathryn Pedersen, Originating Branch Manager, CrossCountry Mortgage. “Rates hit a high in Oct 2022 and have improved from that point since then. We are already starting to see signs of inflation and housing costs coming down, which will help rates improve.”
Still, Pedersen says concerns over current rates should not stop you from investing in real estate now. “We do have a lot of people who are waiting for rates to come down to purchase property. At this point, that’s not the best idea. Once we see rates drop, activity will pick up substantially. That will push prices higher and make the market more frenzied. Then we’re going to be back in the multiple offer situation, which will be difficult for buyers,” Pedersen says.
The name of the game is to buy now and refinance later, Pedersen suggests. Rather than focus on the interest rate, brokers are using strategies to get creative with loan structure to focus on making the monthly payment more affordable. “You want to be comfortable with a payment that you have committed to, even knowing there could be an opportunity to refinance down the line,” she says.
One of the most common strategies is a temporary buydown, which is when upfront funds are deposited into an escrow account to temporarily reduce the interest rate and effective monthly payment for a specific period of time. “The seller gives a credit to the buyer to subsidize and lower their rate for the first couple years. This is obviously not a great option for properties with multiple offers, but it is a strategy that’s helping buyers to meet a budget for the first few years, with the hope that interest rates will come down or we can create a refinancing strategy later,” Pedersen says.
The key is to look at the cost for the buyer over time and to consider how long they plan to live in the property or when they might be able to refinance. “We look at what is going to be the best strategy on the loan. Because of the current lending environment, mortgages have become more consulted. We have to take more time to go through options more than we used to.”
The big question on everyone’s mind is when will interest rates will come down. “It’s so hard to know. So far, it’s been coming down very slowly,” Pedersen says. It’s also important to understand the difference between the prime rate, which is controlled by The Fed, and the mortgage rate, which is based on mortgage bonds and is determined by the open market. “Mortgage rates are based on the market and are changing all day, every day. While there are some indicators that can help with predictability, it’s more like the stock market where it’s always changing.”
The one thing Pedersen is certain of is when rates come down, the feeding frenzy will begin once again, which will make buying a lot more difficult than it is now. “If the perfect property pops up, what’s going to be important is not the interest rate, but getting the house you want because inventory is so tight.” The bottom line: “People need to be ready now because if and when the market picks up, it’s going to be insane.”// ccm.com/Kathryn-Pedersen