For the past several years, low interest rates have provided a very favorable and accommodative environment for builders to build, lenders to lend and buyers to buy new homes, especially here in Colorado, which has seen robust growth in its new housing stock.
But could the recent rise in rates by the Federal Reserve to a more normal and realistic level take away the punch bowl and, in effect, spoil the party?
[Related: Pressure points—What builders can expect in 2019]
At first blush, the answer might seem yes. Certainly, an increase in the cost of money, in terms of higher rates, affects everyone, from builders to borrowers. However, a return to a more normalized rate environment in a stronger, growing economy also signals some huge, often-overlooked benefits.
One upside is that buyers can anticipate seeing more incentives return to the new-home market.
Incentives fell off for a couple of years while people were lining up to buy their homes. When clients are shopping new communities, the builder incentive is an enticing reason to buy new versus existing.
Incentives can range from sellers covering some or all closing costs, to offering construction and appliance upgrades, to agreeing to buy down the buyer’s interest rate or extend their rate lock.
All these potential incentives, of course, help builders attract more eyeballs to view their properties. Indeed, buyers who may have thought a new home, with all its extras and conveniences, was out of their price range, are suddenly returning to the new-home market where they can see first-hand the quality of the builder’s work and learn just how far their money can go.
Similarly, the new environment provides lenders a platform to up their game.
Programs, more than ever, have to be specific to the borrower. In particular, conscientious lenders are showing their clients how rate-locks and buy-downs can offset a rise in rates.
Buy-down programs are great for buyers who want to take advantage of lower introductory rates for the first one to three years to help offset a new home payment without the risk of an ARM.
While lenders are strengthening their relationships with buyers and builders, they are collaborating more closely with their real estate agent partners. My commitment as a lender is to make sure the best real estate agents know that we work with the best builders and offer the best loan programs.
[Related: Metro Denver growth offers opportunities, challenges for builders]
Change of any kind creates opportunities. Today’s more volatile rate environment is a chance for builders, real estate agents and lenders to be more creative and collectively provide a superior and compelling customer experience.
That’s a win-win-win-win under any conditions.
Renee Boulet is a loan consultant for New American Funding. She can be reached at [email protected]. Steve Byers is area manager for New American Funding.