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Try Not to Think About the Rate, Try to Think About the Payment

Updated: Jan 13

Sharon: I try to get through this meeting today without saying, but before Covid, the news reports were repeated over and over and over we knew what was coming. But, we could all agree that 19 months ago, did we ever think that a global pandemic would be part of our conversation on a daily basis? So, in terms of what we've seen before Covid, we saw it all. We saw interest rates double digits. We saw interest rates north of five percent.

Sharon: When interest rates were in the fours, people were doing cartwheels. It was amazing. Interest rates were never that low before then. We saw interest rates even go lower and lower and lower into the two percent range.

Kyle: There was a point I remember saying all the time they can't get any lower than this and then it was like we were crying wolf, like lying to the consumer. Well, there's no way they could go down and then they went down again. I was like, how is this even happening?

Sharon: And the funny thing is, they would go down and the consumer would ask, do you think they'll go down anymore?

Kyle: How low do you want them? It’s free money.

Sharon: That brings us to where we are today with a margin of uncertainty of where interest rates will end up whether it’ll be 30 days from now or 90 days from now or, you know, six months from now. What the advice we're giving to clients is, try not to think about the rate (and I know that's going to get a lot of kickback). Try not to think about the rate, try to think about the payment because we can do a side-by-side scenario of where rates are and what they think is going to be the worst-case scenario. If you're buying a house today and you're the unluckiest person I know, I'm going to tell you, I’m going to give you a spread of interest rates (I have a point spread): 3.6%, 3.7%, 3.8%, 4% and I'm going to lay it out for you.

Kyle: And what that payment looks like

Sharon: A hundred percent. Right. So, at the end of the day, we're not looking at a significant difference obviously when the eighth of a spread

Kyle: When that goes up from a 3.7 to a 3.8?

Sharon: Don't ask me, you're going to say, what's my payment.

Kyle: I'm not going to say, probably about 25 to 40 bucks a month.

Sharon: Exactly.

Kyle: Depending on your credit score

Sharon: And a conforming loan, obviously, you know, so if you're a super jumbo and it's more than a million-dollar loan, you're talking about a difference of five hundred dollars a month, but you're playing a 1.6-million-dollar home, right? 500 a month increase in payment may not be something that we think about.

Kyle: I don't know if you looked at the exact numbers, but it's like 2016 average sales price in Suffolk County was like 380 and then 2019 it went to 480 and right now it's at 525 the average sales price in Suffolk County.

Sharon: Right, correct.

Kyle: I do a bid in Nassau County, my team does more in Nassau County where their average sales prices are hitting 650, 680 over at Nassau County. So, it's not that far-fetched to be looking at the million-dollar home and selling a lot in that range right now.

Sharon: Not at all.

Kyle: But the first-time home buyer, typically we're looking at 500 on average.

Sharon: Yeah, would you ever have thought that, no?

Kyle: No. I had a conversation with Jeff Jimenez when we were on the golf course and he said the average home price has now just increased. You set a new standard as to what the average home price is going to be on Long Island and you're not going to find the 250,000 350,000-dollar homes anymore.

Sharon: No.

Kyle: I have one coming on the market and in another couple weeks, it'll be under four. You know that thing is going to disappear.

Sharon: Very quickly.

Kyle: And not for the fact of underpricing it. It's where the value should be and most likely where it's going to appraise exactly, but it's going to have a line out the door just based on the amount of buyers looking under 400,000 dollars.

Sharon: Right. Exactly, very true.

**I’ve invited Sharon Starke from Cardinal Financial in this episode to share insights about today's real estate market. For more updates and information about real estate, buying or selling homes, and other great content, you can also check out other episodes from our YouTube channel and Soundcloud Podcast

Planning to your home? Looking for a new property? Moving to a different city or state? We can make the process easy. Contact the best real estate agent and real estate team: The Island Wide Team today!


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