Interest rates have been all over the news. But what do they really mean, and how are interest rates impacting our local market? To find out more, we sat down with John Stormans, a Greene Realty agent with experience in interest rates and what they mean for investment properties and residential home buyers. He talked about our local market, what buyers and investors should think about when buying a property in this interest-rate environment, and his super sweet baseball card collection.
Since getting his real estate license in 2017, John has been working with residential and commercial investment properties and has always found the business of real estate very compelling.
So, I've always been, uh, relatively financially minded, and I find this stuff to be very interesting. I started making small investments in like the stock market. So, as I transitioned into this career in real estate, I was interested in investment real estate.
As he reflects on his beginnings as an agent, John realizes how much things have changed.
“At the time when I started in 2017, I don't think interest rates were a very topical thing at all. I think rates were probably in the high four percent range, and it seemed like things hadn't moved very much for years,” he says. “But as I started getting interested in investing, my dad and I started buying some properties, and I started doing some other things and trying to build the investment part of my own business; then it became a lot more important because when you're doing financial analysis from that perspective, the return you can make is partly based on how much it costs to borrow the money and what your monthly payment is going to be. That's all driven by interest rates.”
So, how does he feel about interest rates and how they are affecting our local housing market?
Q: What is interest?
A: The interest rate is the amount a lender charges a borrower and is a percentage of the principal. The amount loaned and the interest rate on the loan are typically noted on an annual basis and are known as the annual percentage rate. So, when we borrow money for a residential mortgage, we are charged an interest rate. The bank is charging money to borrow money from them. The way that we pay that back is typically through something like a 30-year fixed loan.
Q: How Should Buyers Approach the Market with Rising Interest Rates?
A: So the first thing is as the interest rates go up, your monthly payment is going to go up. And oftentimes, when we're looking at houses with people equally as important, if not at times more important than what you are paying for the house, is what your monthly payment will be. At Greene Realty, we're not in the interest of anybody being house poor. You are not supposed to be buying a house you can't afford. You're not supposed just to go all in because you think it's going to be so cool and you'll live in this cool house, but it'll run you broke. They're not just going to let you buy a $2 million house if you don't have the income to support it.
The simplest way to put it is that you're going to pay more per month to live in the same house unless the purchase price comes down.
It comes down to something pretty simple. If you're going to buy a house, you make an income, you're going to determine as a home buyer what monthly payment you are or are not comfortable with; and our advice is always to make sure you have a monthly payment that you are comfortable with, and that will determine what you can or cannot offer on the house. In terms of how interest rates affect things, for me, it's that simple. Are you comfortable with the payment? Do you love the house? From my perspective, that's how I am approaching things. I’m trying to avoid speculating.
Q: What about Investment Properties?
A: Investment real estate all comes down to what is your investment criteria. What is the return that you're looking for? What kind of property are you wanting to buy? How much money do I have, and what return am I going to get? Yeah. Even though it's more complex, to be an effective real estate investor, you have to have investment criteria, and you have to be able to determine whether it's a deal you want or a deal you do not want.
Q: What about sellers? How Should They Account for Interest Rates?
A: I think that sellers, more than ever, must collaborate with their real estate brokers and the professionals they trust. This is why, at Greene Realty Group, we work hard to be so educated and give our clients everything we've got. To keep studying and keep staying on top of stuff because I think it's going to depend across the board on someone's situation, and having a trusted collaborator is going to be really important to help people arrive at the decision that they want to arrive at.
You Can Still Own Your Dream Home
In the end, John still believes that if you have found your dream home, you should pursue it.
"I'm always optimistic because opportunities are always being created one way or another regardless of what's going on around us," he says. "We can only control stuff that we can control. Over time I know that owning real estate is an incredibly beneficial thing and that it has dramatic positive implications for people's lives. Always has, and always will."