3% Rates - You either got in, or you didn't!

Philadelphia, Pennsylvania
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3% Rates - You either got in, or you didn't!

Alan AsriantsBusiness Member
Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes

Today's market is much different from the market we have seen in the past 3 years

Interest rates were at an all time low for too long. This gave many people the opportunity to buy in at historically low rates.

This caused prices to go up, while keeping many people in affordable payments.

Now people don't want to let go of those rates. They are holding onto their properties like golden eggs. I don't blame them!

This is causing the supply to go way down, and in some markets even though the demand is low, the supply is not keeping up with the limited demand.

Anything that is well taken care of, in a nice and desirable area is flying off the market at even higher prices than before

This is making it extremely difficult for first time home buyers and for investors who want to see their numbers works.

Throw in the 7% interest rate, and half of the deals are dead in the water, even below asking price.

This is making it difficult for people to pull the trigger on buying Real Estate.

Another aspect of it is FOMO.

Your buddy bought a 400k house with a 3% rate. It's beautiful, everything you ever dreamed of and you want one too. But now you have to pay 450k for it at a 7.125% rate.

How does that make you feel?

Probably not good...

Until people realize that 3% rates were a "either you got in or didn't get in" kind of thing, people will find it difficult to buy.

Everyone feels good about buying a house at a 3% rate.

So if you're looking to buy a house or an investment property, you have to face reality and what the market is today.

It's likely that we won't ever see those kinds of rates.

Buy the home because you love it and you can afford it.

Buy the investment for a long term hold in a strong area. Make sure it is at least covering your expenses.

Today is not yesterday! And tomorrow you might be thinking: "I wish I bought more Real Estate when rates were 7% LOL!"

Rates can only go down or up. 

If rates go down, you can refinance

If rates go up, you would've wished you took out more debt

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Jake AndronicoBusiness Member
Realtor · Reno, NV · Member since 2019 · 1k+ posts · 938 votes
3y

Such a good quote: 

"Rates can only go down or up.

If rates go down, you can refinance

If rates go up, you would've wished you took out more debt"

Thank you for putting these wide words out there! Couldn't agree more. 

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  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    3y

    I am so stoked that my primary is locked in at 2.875%. I bought it in Jan 2019 before the big run-up in prices. Then refinanced when rates were almost at their bottom.

    But here's the thing... I do not have FOMO for those that bought at the peak pricing and locked in those low rates. Yes those buyers might have locked in a 2.5% interest rate, but at least in my market, they also WAY overpaid for their homes.

    We're talking big losses. Somebody who paid $800,000 retail pricing for a house at the peak would be lucky to sell that same house for $700,000 today (which means they net even less after paying commissions). So yes they might have a crazy low interest rate, but they also are horribly upside down on their investment.

    I guess my lesson learned here is that you need to try to buy below retail or buy value add deals, all the time. In any market. Regardless of where rates are at or any other factor. That's the only way to insulate yourself from a downturn like this.

    8Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    3y
    Quote from @Scott E.:

    I am so stoked that my primary is locked in at 2.875%. I bought it in Jan 2019 before the big run-up in prices. Then refinanced when rates were almost at their bottom.

    But here's the thing... I do not have FOMO for those that bought at the peak pricing and locked in those low rates. Yes those buyers might have locked in a 2.5% interest rate, but at least in my market, they also WAY overpaid for their homes.

    We're talking big losses. Somebody who paid $800,000 retail pricing for a house at the peak would be lucky to sell that same house for $700,000 today (which means they net even less after paying commissions). So yes they might have a crazy low interest rate, but they also are horribly upside down on their investment.

    I guess my lesson learned here is that you need to try to buy below retail or buy value add deals, all the time. In any market. Regardless of where rates are at or any other factor. That's the only way to insulate yourself from a downturn like this.


    are you seeing that kind of price compression in Scottsdale right now and across the board ?  PHX market was one of the ones that got hit bad in the GFC. 

    I think unlike the GFC were folks handed in the keys in droves and created even worse situation. I suspect because the rates are so low their payments are low and its cheaper for them to stay put then to let the home go like they did before .  For the same home rent many times is as much or more than mortgage so unless they have to sell  Divorce death job loss or transfer folks are just going to ride it out.. do you think thats an accurate statement or do you think there is going to be a bunch of folks in your market decided to walk  ruin their credit etc because they have negative values.  Investors basically should not care as the homes should still be cash flowing unless rents have crashed as well.. then thats a different dynamic that could mirror 08.  Your thoughts ? 
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  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    3y
    Quote from @Jay Hinrichs:
    Quote from @Scott E.:

    I am so stoked that my primary is locked in at 2.875%. I bought it in Jan 2019 before the big run-up in prices. Then refinanced when rates were almost at their bottom.

    But here's the thing... I do not have FOMO for those that bought at the peak pricing and locked in those low rates. Yes those buyers might have locked in a 2.5% interest rate, but at least in my market, they also WAY overpaid for their homes.

    We're talking big losses. Somebody who paid $800,000 retail pricing for a house at the peak would be lucky to sell that same house for $700,000 today (which means they net even less after paying commissions). So yes they might have a crazy low interest rate, but they also are horribly upside down on their investment.

    I guess my lesson learned here is that you need to try to buy below retail or buy value add deals, all the time. In any market. Regardless of where rates are at or any other factor. That's the only way to insulate yourself from a downturn like this.


    are you seeing that kind of price compression in Scottsdale right now and across the board ?  PHX market was one of the ones that got hit bad in the GFC. 

    I think unlike the GFC were folks handed in the keys in droves and created even worse situation. I suspect because the rates are so low their payments are low and its cheaper for them to stay put then to let the home go like they did before .  For the same home rent many times is as much or more than mortgage so unless they have to sell  Divorce death job loss or transfer folks are just going to ride it out.. do you think thats an accurate statement or do you think there is going to be a bunch of folks in your market decided to walk  ruin their credit etc because they have negative values.  Investors basically should not care as the homes should still be cash flowing unless rents have crashed as well.. then thats a different dynamic that could mirror 08.  Your thoughts ? 

    Yes that compression is happening in Scottsdale and surrounding cities. There are a few exceptions (for example, our Paradise Valley market which is an ultra luxury pocket is still doing very well)

    I agree with your comments on comparing today to the 2008 crisis. Even though a lot of people who bought recently paid more than their home is worth, I don't think they'll be just walking away and handing over the keys. Because rent rates are so high, if they were to do that they almost have nowhere else to go other than move out of the state.

    Little side story - I was a mortgage loan officer in 2007 and then was redeployed to the loss mitigation department at the same bank by 2010. In this department we processed modifications, short sales, deed-in-lieu's. Our job was to help borrowers avoid foreclosure. So I saw first hand the impacts that death, divorce, disability, adjustable rate loans, pay-option loans, etc had on the market. And based on what I saw in 2010 compared to today, no doubt 2023 is very different.

    4Reply
  • Karl B.
    Rental Property Investor · Erie, PA · Member since 2015 · 1k+ posts · 2k+ votes
    3y

    You're not wrong! A few years ago I refinanced a duplex and paid down points to 2% (original refinance rate I qualified for was in the high 2%). 

    I moved out of that state but due to the insanely low rate (and the fact I rented out my side of the duplex and am now cashflowing a grand a month) it makes zero sense for me to sell unless someone came to me with a stupid offer, which is unlikely as they would have to be a cash buyer and I'm content holding as my refinance went from a 30 year FHA down to a 15 year and it's a great property and was custom built and not a junky tract duplex.

    I definitely see the sellers who want to sell instead holding for several reasons:

    -They don't want to sell and get into a high-rate mortgage

    And/or

    -They're currently in a low-rate mortgage (as you alluded to)

    And another reason is due to low inventory they don't see a property they would even consider! Or perhaps they can't even get a new loan due to banks tightening. At any rate, we won't see inventory go up until there's blood in the water and people are desperate. I think STR will definitely be the first shoe to drop if the economy gets bad.

    5Reply
  • Jake AndronicoBusiness Member
    Realtor · Reno, NV · Member since 2019 · 1k+ posts · 938 votes
    3y

    Such a good quote: 

    "Rates can only go down or up.

    If rates go down, you can refinance

    If rates go up, you would've wished you took out more debt"

    Thank you for putting these wide words out there! Couldn't agree more. 

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  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y
    Quote from @Scott E.:

    I am so stoked that my primary is locked in at 2.875%. I bought it in Jan 2019 before the big run-up in prices. Then refinanced when rates were almost at their bottom.

    But here's the thing... I do not have FOMO for those that bought at the peak pricing and locked in those low rates. Yes those buyers might have locked in a 2.5% interest rate, but at least in my market, they also WAY overpaid for their homes.

    We're talking big losses. Somebody who paid $800,000 retail pricing for a house at the peak would be lucky to sell that same house for $700,000 today (which means they net even less after paying commissions). So yes they might have a crazy low interest rate, but they also are horribly upside down on their investment.

    I guess my lesson learned here is that you need to try to buy below retail or buy value add deals, all the time. In any market. Regardless of where rates are at or any other factor. That's the only way to insulate yourself from a downturn like this.


    Congrats on securing that great rate and buying before the peak! I guess the FOMO is hyper local and market based.

    In my market prices still have not come down, but in downtown areas they have.

    So someone looking to buy in the suburbs is paying more than what someone paid when rates were low.

    Market to market for this case likely. 

    Still, the average person looks at their monthly payment when determining what house they will buy.

    If their buddy is paying 3k/m for a 4 bed 3600sqft house with private backyard yada yada, but you can only buy a townhouse with 2000sqft for 3k a month, it makes it difficult for the average person to pull the trigger right now.

    Has AZ soon a return in prices or the prices still lower than peaks?

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  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y
    Quote from @Jay Hinrichs:
    Quote from @Scott E.:

    I am so stoked that my primary is locked in at 2.875%. I bought it in Jan 2019 before the big run-up in prices. Then refinanced when rates were almost at their bottom.

    But here's the thing... I do not have FOMO for those that bought at the peak pricing and locked in those low rates. Yes those buyers might have locked in a 2.5% interest rate, but at least in my market, they also WAY overpaid for their homes.

    We're talking big losses. Somebody who paid $800,000 retail pricing for a house at the peak would be lucky to sell that same house for $700,000 today (which means they net even less after paying commissions). So yes they might have a crazy low interest rate, but they also are horribly upside down on their investment.

    I guess my lesson learned here is that you need to try to buy below retail or buy value add deals, all the time. In any market. Regardless of where rates are at or any other factor. That's the only way to insulate yourself from a downturn like this.


    are you seeing that kind of price compression in Scottsdale right now and across the board ?  PHX market was one of the ones that got hit bad in the GFC. 

    I think unlike the GFC were folks handed in the keys in droves and created even worse situation. I suspect because the rates are so low their payments are low and its cheaper for them to stay put then to let the home go like they did before .  For the same home rent many times is as much or more than mortgage so unless they have to sell  Divorce death job loss or transfer folks are just going to ride it out.. do you think thats an accurate statement or do you think there is going to be a bunch of folks in your market decided to walk  ruin their credit etc because they have negative values.  Investors basically should not care as the homes should still be cash flowing unless rents have crashed as well.. then thats a different dynamic that could mirror 08.  Your thoughts ? 

     same thoughts from me here.

    Two different situations between now and GFC. 

    Only people I am seeing selling are the ones forced to sell. 

    Those who thought about selling a few years ago, now doesnt want to give up their home and rate and are turning to renting and property management!

    People are doing whatever they can to hold onto their low rate assets

    I'd imagine not much is going to change in the future. 

    Only thing that can really put people under water is if rents drop dramatically

    COuld be a result of credit card crisis, super high inflation, that forces landlords to cut down on rent becasuse people just can't afford. 

    I think affordable 1-2 beds, even 3 bed homes will be the bread and butter

    Luxury rentals might see a hit imo

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  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y
    Quote from @Karl B.:

    You're not wrong! A few years ago I refinanced a duplex and paid down points to 2% (original refinance rate I qualified for was in the high 2%). 

    I moved out of that state but due to the insanely low rate (and the fact I rented out my side of the duplex and am now cashflowing a grand a month) it makes zero sense for me to sell unless someone came to me with a stupid offer, which is unlikely as they would have to be a cash buyer and I'm content holding as my refinance went from a 30 year FHA down to a 15 year and it's a great property and was custom built and not a junky tract duplex.

    I definitely see the sellers who want to sell instead holding for several reasons:

    -They don't want to sell and get into a high-rate mortgage

    And/or

    -They're currently in a low-rate mortgage (as you alluded to)

    And another reason is due to low inventory they don't see a property they would even consider! Or perhaps they can't even get a new loan due to banks tightening. At any rate, we won't see inventory go up until there's blood in the water and people are desperate. I think STR will definitely be the first shoe to drop if the economy gets bad.


     100%! 

    No point in selling if you're cashflowing 1k a month. That's incredible income.

    Like I said in the header - you either got in or you didn't

    The biggest winners were the investors who secured low rate debt on super high cash flowing properties - no point in them selling

    and people who just owned real estate before the pandemic. 

    they saw super high increases in equity and practically pulled out free money.

    I agree i think STR will get hit the hardest. Especially those who did not price them out as LTR

    I tell all my clients that are looking at MTR and STR to run numbers as a LTR! If it covers your basis go for it!

    Unfortunately I saw too many people buying in at AirBnB values

    I was in CO and saw Realtors marketing homes for the potenital STR income. Now they are sitting

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  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y
    Quote from @Jake Andronico:

    Such a good quote: 

    "Rates can only go down or up.

    If rates go down, you can refinance

    If rates go up, you would've wished you took out more debt"

    Thank you for putting these wide words out there! Couldn't agree more. 


     Thank you sir! Glad to provide insight on here!

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  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    3y

    @Alan Asriants "Only people I am seeing selling are the ones forced to sell" - This is somewhat true. There are investors selling dud rentals, and primary homes. My wife and I sold our primary that had a 3% fixed rate, but before we did we leveraged a HELOC to complete a BRRRR, bought another primary, and didn't want rent the old house. The future capex would have be challenging and annoying as a rental. Made sense to sell for a lot of reasons. The majority of investors and home owners don't have strong reasons to sell given the market conditions.

    3Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    3y

    The high interest rates we have now have kept me from selling for sure. My primary is at 2.15% and I've got 6 rentals at 2.75% that I was planning on doing cash out refis to pull equity out. Not anymore. I'll just hang onto them and not refi. I've got another 6 or 7 SFR under 4%. So we're all basically stuck and not selling or refinancing. And the numbers aren't working in my area to buy n hold. Crazy times! But I'm not complaining. This severe housing inventory for affordable homes will keep prices high I definitely due to demand from first time home buyers.

    2Reply
  • Sam YinPro Member
    Los Angeles, CA · Member since 2021 · 583 posts · 738 votes
    3y

    @Alan Asriants

    I think it all depends on your personal goals.

    I had 3 SFRs, 1 duplex, and 2 Triplexes, ALL with fixed rates from 2.65% to 3.75%. Some cash flowed great, considering what most investors are looking for in cash flow. I sold ALL of them.

    It was to grow. Best decision EVER! I allowed me to scale up by free the equity. Right now, my purchases are creeping in the high 6%. And I'm elated.

    Rates should not be the determining factor. Do not let rates hold you back. Look at the big picture. If you focus on rates, you will forever be left behind.

    4Reply
  • Doug Spence
    Investor · San Diego, CA · Member since 2016 · 1k+ posts · 975 votes
    3y

    @Scott E. If folks are buying real estate for the long term (which they should be) then a decrease in home price in the short term doesn't really matter! Their home value will gradually go up over time, but their interest rate won't. 

    1Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    3y

    @John Morgan Very good problems to have!

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  • Chi Mak
    Member since 2023 · 2 posts · 2 votes
    3y

    I guess I was lucky at 2.6% 

    1Reply
  • Alex BekezaBusiness Member
    Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    3y

    Most of Philadelphia cash flows just fine in the 7s and 8s from what I can see on the DSCR loans we're funding there. Investors have no reason to take their foot off the gas.

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  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    3y
    Quote from @Jake Andronico:

    Such a good quote: 

    "Rates can only go down or up.

    If rates go down, you can refinance

    If rates go up, you would've wished you took out more debt"

    Thank you for putting these wide words out there! Couldn't agree more. 


     RE prices can only go up or down.

    If prices go up, great your net worth increased.  if used as rental, chances are outstanding that rents have risen. 

    If prices go down, you will wish you had waited to buy rather than paid more than your property is currently worth.

    I am unconvinced that the finance issues affecting commercial MF (>4 units) will not impact non-commercial RE (<5 units). 

    I have not purchased since Dec 2021 (bought $4m that month).  I have no FOMO.   My underwriting does not show the return that I expect for residential RE which is not passive.   There are many investment options other than residential RE.

    The future is not ours to see …

    Good luck to all.  

    2Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y
    Quote from @Alex Bekeza:

    Most of Philadelphia cash flows just fine in the 7s and 8s from what I can see on the DSCR loans we're funding there. Investors have no reason to take their foot off the gas.


    Are you seeing a lot of DSCR Lenders charging full prepay in PA? Very hard to nail down a straight answer on the prepayment protection laws there (very gray area)

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  • Vlad B.
    Member since 2019 · 90 posts · 56 votes
    3y
    Quote from @Jake Andronico:

    Such a good quote: 

    "Rates can only go down or up.

    If rates go down, you can refinance

    If rates go up, you would've wished you took out more debt"

    Thank you for putting these wide words out there! Couldn't agree more. 

    Yes, except none of us have a crystal ball of which way it's going to go...
    If you do, let's talk, I'm interested.
    1Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    3y

    I've found new investors are always waiting for something to happen that is out of their control. When rates were 3%, they were waiting for the impending "crash," they didn't want to get in to bidding wars. Well...they're still waiting. 

    Now they are waiting for rates to get back down to what they think is normal- 4ish%, which is absolutely not normal, just the only thing they know. They'll likely be waiting forever. 

    In REI the only thing that matters is taking action. There are opportunities in every market every single day. Taking actionable steps and holding properties for the long term is the only thing that will change your life. I know this is true from experience- Every property I've ever purchased has transformed from an "okay" deal the day I closed to a killer deal after 5 years or so. Not because I did anything special, I just bought a property and waited for the market to catch up.

    People always think I'm joking when they ask me what the best investing book for REI is. It's not "Rich Dad, Poor Dad," it's "Oh, The Places You'll Go," by Dr Seuess. If you haven't read it, you should. There's no simpler message on how to find success in life than that book.

    Happy Investing!

    7Reply
  • Alex BekezaBusiness Member
    Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    3y

    @Robin Simon I'm with you. Very confusing.  1/2 of these commercial lenders seem to be fine throwing a 5 year PPP on there and others say no PPP in PA and therefore have to jack the rates way up. There seems to be some disconnect on which types of loan programs are subject to the state rule.  

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  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y
    Quote from @Jaron Walling:

    @Alan Asriants "Only people I am seeing selling are the ones forced to sell" - This is somewhat true. There are investors selling dud rentals, and primary homes. My wife and I sold our primary that had a 3% fixed rate, but before we did we leveraged a HELOC to complete a BRRRR, bought another primary, and didn't want rent the old house. The future capex would have be challenging and annoying as a rental. Made sense to sell for a lot of reasons. The majority of investors and home owners don't have strong reasons to sell given the market conditions.


     Makes sense! If the capex is not worth holding onto the investment, selling high could be a good pull too. That being said, I think most RE investments will make sense 10 years from now if properly maintained. 

    Did you use the sale of your old house to pay off the HELOC?

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  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y
    Quote from @John Morgan:

    The high interest rates we have now have kept me from selling for sure. My primary is at 2.15% and I've got 6 rentals at 2.75% that I was planning on doing cash out refis to pull equity out. Not anymore. I'll just hang onto them and not refi. I've got another 6 or 7 SFR under 4%. So we're all basically stuck and not selling or refinancing. And the numbers aren't working in my area to buy n hold. Crazy times! But I'm not complaining. This severe housing inventory for affordable homes will keep prices high I definitely due to demand from first time home buyers.


     Looks like you got some great deals at cheap debt.

    Im worried that the market has changed forever. Too many people are informed about Real Estate from podcasts like this, social media, etc. This caused so many people to get into the game. I have 18 year olds calling me about FHA house hacking, which is awesome. But this means that the word is out and competition is even tighter.

    Those who are in are in and will see long term wealth gains. Those who wait, will have it harder to get in the longer they do so. 

    A good deal is only one you find on your own and basically steal from the current owner. 

    Cheap debt is also forcing lots of homeowners to turn into landlords. Instead of selling they are mostly renting out their properties if they need to move and have enough capital.

    Crazy times!

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  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y
    Quote from @Sam Yin:

    @Alan Asriants

    I think it all depends on your personal goals.

    I had 3 SFRs, 1 duplex, and 2 Triplexes, ALL with fixed rates from 2.65% to 3.75%. Some cash flowed great, considering what most investors are looking for in cash flow. I sold ALL of them.

    It was to grow. Best decision EVER! I allowed me to scale up by free the equity. Right now, my purchases are creeping in the high 6%. And I'm elated.

    Rates should not be the determining factor. Do not let rates hold you back. Look at the big picture. If you focus on rates, you will forever be left behind.


     That's great that you were able to pull out the equity and use it elsewhere.

    ROE is a very important calc too and if people are not running those numbers, then they will defitenly stay stuck in their rates!

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  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y
    Quote from @Doug Spence:

    @Scott E. If folks are buying real estate for the long term (which they should be) then a decrease in home price in the short term doesn't really matter! Their home value will gradually go up over time, but their interest rate won't. 


     yessir, telling all of my clients that you are buying for the next 10 years not tomorrow!

    Rents will grow, your payment stays the same (aside from taxes and insurance) and if rates dip you can refi and make even more cash flow. 

    RE is a long term game! Spot on

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