Read Part 1: Creating Urgency with Clients in a Declining Rate Environment
In part 2 of our 3-part series on creating urgency with clients in a declining rate environment, we unpack the role buyer’s leverage plays in home buying and the importance of purchase mortgage application data as a leading indicator of measuring buyer demand.
2. Buyer’s Leverage beats Timing the Bottom
Would you knowingly visit a Nordstrom to purchase a new wardrobe at full price, when you know a big sale and savings opportunity is coming soon? Unless you have an urgent wardrobe need, the answer is most likely, ‘heck no!’
This is a great example of the difference between buying a home vs. buying any other consumer goods. Oftentimes buyers will hear of future prime rate cuts and decide to refrain from entering the housing market until they believe mortgage rates have bottomed. This is where we as practitioners can simultaneously serve as fiduciaries and salespeople by educating, empowering and building value with our clients.
The problem with applying the same logic for consumer good purchases with real estate is that housing is not a commodity, but an asset that is financed ~75% of the time with loans. This means as financing conditions improve, so do purchase mortgage applications as buyer demand strengthens, shifting negotiation leverage to the seller.
Instead of allowing your client to believe the best time to purchase may still be months away when the Federal Reserve lowers the prime rate even further, educate your buyers by sharing with them purchase mortgage application data from the Mortgage Bankers Association. This is a free resource that 99% of buyers will not be familiar with and can be a great tool to visualize for buyers how buyer demand is strengthening in a declining rate environment.
Take for example the prime rate cut of 50 basis points, announced by the Federal Reserve on September 18, 2024. In the the days immediately following the announcement, purchase mortgage demand grew nearly 25%, despite interest rates beginning to fall in the 12 weeks leading up to September 18*. This is a great example of how wide-spread awareness of prime rate cuts impacts purchase mortgage application and buyer demand, despite mortgage rates already declining in the weeks leading up to an announcement.
Helping your buyer realize their negotiation leverage is directly tied to buyer demand is important to helping them take action earlier in a declining rate environment. Taking action sooner could help them find motivated sellers who have yet to witness the growing buyer demand and agree to an offer that reduces the sale price and makes you look like a rockstar along the way.
In part 3 (and final) article on ways to create urgency in a declining rate environment, we unpack the ultimate sales strategy and script to help your buyers feel comfortable with making a home purchase before mortgage rates bottom-out. You won’t want to miss it!
Read Part 3: Creating Urgency with Clients in a Declining Rate Environment
