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News / Business / Clark County Business

Clark County experts: Time to buy a home is now, before dip in interest rates increases competition

Buyers may save in long run, especially if they refinance later

By Alexis Weisend, Columbian staff reporter
Published: May 25, 2024, 6:02am

High interest rates are making it harder for people to buy homes in Clark County’s already hot market. But buyers shouldn’t wait for interest rates to drop, real estate agents and mortgage brokers working in Clark County say.

“If you have the down payment, you should be buying today,” said Josh Fuhrer, a real estate investor and developer. “You’ll be kicking yourself later if you wait.”

Real estate agents say more people in Clark County are buying their first homes now, sacrificing a few years of costly mortgage payments to lock in current prices. They warn that once interest rates drop, buyers will flood the market, driving up competition and home prices.

“What I’m telling buyers right now is get your foot in the door at a good price then refinance when the interest rates come down,” said Michele Montoya, a real estate broker and CEO of Envision Home Properties.

Home cost estimates

Scenario of a first-time homebuyer with the average 6.5 percent down payment and 715 credit score purchasing a $522,000 home (the median cost) in Clark County.

These monthly payment estimates include average estimated property tax for Clark County, home insurance in Washington and mortgage insurance, which totals about $850:

Buy in 2024 with average 7.11 percent interest rate: $4,125.50

Refinance in 2026 with potential drop to 6.11 percent interest rate: $3,205.50

Buy in 2026 with potential drop to 6.11 percent interest rate but 5.4 percent price hike: $3,981.50

Sources: Sammamish Mortgage, Bankrate, Nerdwallet and SmartAsset’s Washington Property Tax Calculator

Calculate your own housing costs using this online calculator: https://www.nerdwallet.com/article/mortgages/pmi-calculator

‘Get in the game now’

People looking to buy a home in 2024 were likely glad to hear the Federal Reserve planned to cut interest rates three times this year.

Although interest rates averaged 3.15 percent in 2021, they’ve risen to a little above 7 percent for 30-year fixed mortgages over the past year, the most popular loan type, according to Bankrate.

But hopes were dashed when the Fed pointed to consistently high inflation at its May 1 meeting, and officials said plans for cuts are on hold.

That might actually be a good thing, real estate experts say, especially for buyers with smaller down payments.

Many people are waiting for interest rates to drop to buy, including people wanting to move out of their homes and people who can’t afford loans at today’s interest rates, according to real estate experts.

That means when interest rates drop and loans become more affordable, buyers will flood into the housing market.

“We’re already getting back to multiple offers,” Montoya said. “As soon as interest rates come down, we’re going to get back to 10 to 20 offers on a property. So people are going to be bidding $50 to $100 grand over.”

The average first-time homebuyer in Washington is putting down 6 percent to 7 percent on a home, according to Sammamish Mortgage. They often need the help of a Federal Housing Administration loan, which just requires a minimum down payment of 3.5 percent of the home’s purchase price.

“When you’re putting a lower down payment down and you’re up against another buyer who’s putting $100 grand, $200 grand down, you’re not going to win on that,” Montoya said.

Clark County has historically experienced low inventory, although the number of homes for sale is back up after a major dip in 2021 and 2022, according to Regional Multiple Listing Service reports.

Inventory levels will plummet when interest rates drop, Montoya said, even with people wanting to move selling their homes.

“You’re going to want to get in the game now because it’s going to be almost next to impossible to get an offer accepted when you’re competing against 10 to 15 offers,” she said.

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‘Date the rate’

When Fuhrer is asked whether people should wait for interest rates to drop to buy a home, he points to a common saying in real estate: Date the rate and marry the house.

“The one thing you can’t change is the purchase price. The one thing you can change is the interest rate,” he said.

The median home price in Clark County was $522,000 in April, according to last month’s Regional Multiple Listing Service report. That home would have been $505,000 a year ago.

“You’re better off to buy now at what will be a lower price relative to whenever interest rates come down and then refinance your loan when the rates drop,” he said.

It’s difficult to show in number why real estate agents say to buy now. But let’s consider a scenario with a hypothetical Clark County homebuyer who has the average credit score and the average down payment for a median-priced house.

Monthly housing costs — including average property taxes, homeowners insurance and mortgage insurance in Clark County — would be about $4,100 at current interest rates for this person.

That’s not an option many can afford for long. A monthly payment that high is only affordable for a household making about $150,000 a year or more, whereas the area median household income for Clark County is about $117,000.

But if two years from now, interest rates drop 1 percent and the same homeowners refinance after two years of consistent payments, their monthly housing costs will be about $3,200.

Alternatively, if the buyers waited two years to purchase this home and interest rates dropped 1 percent, they’d spend almost $4,000 per month on housing costs if the home price increased by 2.7 percent each year (the average jump in home costs each year in Clark County).

But everyone’s situation is different, said Heather McGarry, a mortgage adviser with Knight Financial Home Loans. People have diverse financial situations, goals and needs for a home.

“It’s not a cookie-cutter experience,” she said. “It might be the right time for somebody. It might not be the right time for another person depending on all the different variables they have going on in their life.”

She warns that refinancing is never a guarantee. Changing market conditions or personal financial troubles can jeopardize someone’s ability to get a new loan on their home. Refinancing is also an expensive ordeal that can cost thousands of dollars.

Options for buying now

If someone wants to buy a home in Clark County now but has concerns about high interest rates, real estate experts recommend several strategies.

Mortgage financing techniques known as 3-2-1 and 2-1 buydowns temporarily lower interest rates on a mortgage for the first few years of the loan before returning to a standard rate.

For example, let’s say a buyer secured a 3-2-1 buydown. If the standard rate of the loan is 7 percent, the homeowner would pay 4 percent interest the first year, 5 percent the second year and 6 percent the third year. After that, they’d pay 7 percent consistently (unless they refinance).

However, this costs extra money upfront, which the seller usually pays, McGarry said. The buyer’s agent usually tries to negotiate with the seller to include the cost of the buydown as part of the deal. McGarry said this often happens when a house needs repairs.

Fuhrer said the balance of power is tipped toward the buyer in today’s market.

“Yes, interest rates are up but so is inventory, which means as a buyer, you’ve got more negotiating room with the seller,” he said.

Montoya said one of the biggest benefits of buying now is growing equity.

“The most important thing is actually obtain a property,” she said. “Because when the interest rates come down, you’re going have a ton of equity when people start competing and offering over.”

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This story was made possible by Community Funded Journalism, a project from The Columbian and the Local Media Foundation. Top donors include the Ed and Dollie Lynch Fund, Patricia, David and Jacob Nierenberg, Connie and Lee Kearney, Steve and Jan Oliva, The Cowlitz Tribal Foundation and the Mason E. Nolan Charitable Fund. The Columbian controls all content. For more information, visit columbian.com/cfj.