HGTV stars Drew and Jonathan Scott shared their advice for homeowners and landlords after mortgage interest rates hit 7%.
The Property Brothers discussed the rise and the worst mistakes homeowners can make when it comes to buying and selling right now.
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The average interest rate for 30-year fixed-rate mortgages increased from 7.13% to 7.24% last week, according to CNBC.
Simply put, interest rates are the price paid to borrow money.
When mortgage rates rise, homeowners have to pay more each month if they want to get a mortgage or refinance.
Mortgage interest rates are determined by the federal funds rate and the market, which influences the price of housing.
“A lot of crying. That’s what’s happening,” Drew said of current interest rates in a recent interview with Quartz.
“The difficult thing is that anyone looking to refinance or anyone looking to remove equity from their home, it’s a difficult time because you’re not getting what you want with the high rates.”
COMBAT THE HOUSING CRISIS
Drew said high interest rates are forcing many to find new and creative ways to combat rising costs.
One of these creative ideas is to transform a garage into an ADU (accessory dwelling unit).
“Having renters is a great way to offset the crisis and also help people make more money,” Drew said.
An ADU is a smaller residential unit on the same property as a single-family home.
These units can include tiny homes, garage conversions, and basement units.
Drew and Jonathan explained that many Americans are becoming first-time homeowners because of the housing crisis.
Jonathan argued that building new projects, affordable housing and investing in ADUs are viable solutions to the housing crisis.
HOPE IS ALIVE
Drew added that the outlook is not completely bleak for the owners, as Jonathan agreed that there is still opportunity to do well.
“7% is not bad. It’s not great, but it’s not bad,” Jonathan told Quartz.
“But it’s kind of a tipping point where you want to be a little more cautious about what you’re investing your money in and how much money, how much leverage you’re doing.
The brothers warned that the worst mistake homeowners can make amid high interest rates is excessive leverage.
Overleverage occurs when an investor borrows more than he can repay.
“There are some people who just leverage too much and don’t realize that’s when it becomes a problem when your mortgage is up and your rate is going up,” warned Jonathan.
Jonathan and Drew cited one of their clients who put $100,000 on a credit card to pay off the debt needed to purchase a property.
“I think, you’re going to lose everything,” Jonathan recalled.
The brothers also detailed other mistakes they’ve seen potential homebuyers make.
One mistake included purchasing all of the appliances and cabinets in a home before the woman actually purchased the home.
Drew said the home buyer ended up with a lot of things that weren’t ideal for the home she actually purchased, but still tried to make it work.
“You’re not going to get ideal rent if you have a less-than-ideal place for someone to rent,” he said.
Current Mortgage Rates and Forecasts
Mortgage rates for all types of mortgages continue to gradually increase, according to the latest data shared by Forbes.
On April 26, the average rate for a 30-year fixed mortgage increased to 7.75% from 7.65% on April 25.
The current average rate for this mortgage in April is 7.71%.
However, economists have predicted that over the course of the year, mortgage rates will fall.
But before homeowners and buyers breathe a sigh of relief, the drop is not expected to be dramatic.
“The Federal Reserve has indicated that there will likely be cuts to the short-term federal funds rate in 2024, which will put downward pressure on mortgage rates,” said Bright MLS Chief Economist Dr. Lisa Sturtevant.
“Overall, however, rates are expected to remain above 6% throughout [2024].”
Meanwhile, First American Deputy Chief Economist Odeta Kushi said there will be “modest declines in mortgage rates” and the “journey toward [lower mortgage rates] It can be slow and bumpy.”
Jonathan, in turn, highlighted how someone he knew decided to manage the construction of a house himself.
“If you’ve never done GC (general contract) before, you have no idea what you’re doing. And as soon as one of their replacements falls, everything slows down, stops abruptly,” he said.
“You have to be realistic. Hire professionals to come in. You’re going to pay a little more for some of these things, but in the end it’s worth it because you’ll save money.”
Jonathan and Drew are launching a new show on HGTV called Backed by the Bros, where they help aspiring investors get into the real estate market.
“I love that people want to try to create more opportunities for themselves,” Drew said of the program.
Backed by the Bros will arrive on HGTV on June 5th at 9pm EST.
In the meantime, for those wanting to learn about real estate, check out our story about a homeowner who feels like a “prisoner” after securing a low mortgage.
Or for those who want to read more about unique housing, check out this story about a small Canadian village.
This story originally appeared on The-sun.com read the full story
