Why Interest Rates May Not Matter

A few weeks ago, I wrote about rising mortgage interest rates. At that time the 30 year fixed conventional rate had risen to 4.3% and I predicted that interest rates would go to 5% by the end of the year. Well, this week that same 30 year fixed rate went down to 4% which has made me stop and think about whether buyers and sellers really make their decision based on interest rates. Over the years of selling real estate, I’ve discovered that there are five basic reasons that motivate buyers and sellers and it has nothing to do with interest rates but rather changes in their life. Buyers and sellers are propelled to make a lifestyle change when marriage, birth, death, divorce or job change impacts them. Obviously, some of these changes are positive and others not so much. I’ve often said I’ve had more babies in my office the past two years than the previous ten. When millennials marry and start a family, they move out of their two bedroom apartment or condo into a three bedroom single family home. A widow moves from her single family home with stairs and a big yard into a flat with a deck in a secure building. A divorced mother moves into a townhouse not far from her children’s school. A longtime middle manager oil company employee takes his retirement package and his home is purchased and resold by a relocation company. These are real life home buying and selling scenarios that have nothing to do with today’s interest rate.  
 
I’d now like to add a sixth to that list: age and health. Boomers have for the past three decades dictated and defined America’s consumerism. They have bought McMansions, art, fine furniture and cruises while at the same time helping their children through college. Some boomers have saved while others have overspent. How and where they live in the future is the talk of the residential real estate industry. Here in Alaska, every week I meet boomers who are trying to decide how and where to live. And none of them mention interest rates. I met one woman who decided to spend $30,000 remodeling her kitchen because she wants to stay in the neighborhood where she has lived for the past 25 years. I met a couple yesterday who spent the past year travelling all across the west to Sedona, Boise, Carson City and parts of California looking for a new home and community. Now, they’re back in Anchorage, Alaska. Another retired couple have decided to give up their hillside view of the inlet because they want to be closer to shopping and medical facilities. Many are paying cash for a new home while others put 20% down to avoid mortgage insurance or go to a 15 year mortgage. No one, however, whether a millennial, generation X or Y, or boomer makes their decision to buy or sell based upon the mortgage interest rate so perhaps it is just our industry that wants to define the market by the current interest rate. The one caveat, however, to any rising rate discussion is the first home homebuyer. A higher interest rate does downsize what a first time home buyer can afford but that, in itself, won’t stop them from buying. So for now, I’m going to stop discussing interest rates.