When it comes to the current economy, one of the biggest worries on everyone’s mind is how the rising interest rates will affect their ability to purchase a home right now. As a real estate valuation company, we know that you are also concerned about the value of the properties you buy, as well. Let’s take a look at some of the biggest concerns revolving around rising interest rates when it comes to home buying, as well as how CES can help ease your mind during these crazy times through our online home valuation as well as property insights.
Worries About a Recession
If you turn on the news, odds are you will hear talk about a recession headed our way. Investopedia defines a recession as “a significant, widespread, and prolonged downturn in economic activity”. This means that, according to current trends, the worry about a recession affecting real estate valuation and home buying is accurate.
Simply stated, we will go into a recession if housing rates continue to rise. This is due to a few different factors:
First of all, there are overwhelming inflation rates that consumers are dealing with across the country. An increase in costs all around means that buyers have less money to spend on other, bigger purchases.
However, our main concern is real estate valuation and the housing market. Because federal loan rates continue to rise, less and less buyers are willing to purchase homes. They are worried that, by locking into a higher interest rate, they will have to settle for a lower-valued home in order to keep everything affordable.
A Stop on Home Purchases
On the other side, there are many buyers who are simply waiting for a recession to occur. The concept of “what goes up must come down” is given new light as more and more home buyers recognize the looming recession and are willing to put off a purchase until numbers drop significantly.
Obviously, this stop on home purchases is due to continually-rising rates. Bank Rate explains this concept simply with an example showing that a loan with a 4% interest rate would cost significantly less than the same loan amount at a 6% interest rate. When they sit down and do the math, buyers realize that the same loan amount could cost them much more than if they were to wait for rates to drop again.
It is clear that rates are going to continue to rise… but for how long? Because more and more buyers are stepping out of the residential purchase game in favor of potentially lower rates in the future, we may see a recession occur sooner rather than later as the housing market takes a massive downward turn.
No matter how you look at it, the worries of a coming recession and the facts pointing towards one lead fewer buyers to purchase homes at the current, rising rates.
Working With a Real Estate Valuation Company
With all of the stress surrounding interest rates and home buying, you might be wondering how working with a real estate valuation company could benefit you in the coming months. Although there are many reasons why purchasing real estate could still be beneficial during this time, let’s break down two main ways that working with Collateral Evaluation Services could benefit you.
Evaluations vs Appraisals
First of all, there is the major benefit of using an evaluation over an appraisal when it comes to understanding the value of a property. As buyers are spending more money when it comes to an overall real estate purchase due to the high interest rates, saving money wherever you can becomes a priority.
So, what is the difference between an evaluation and an appraisal? Basically, an evaluation is an overview of the properties possible value based on factors including size, rooms, comparisons to other similar properties, etc. It gives you a ballpark estimate of what the property could be worth as a whole without having to go into the specific details of the property.
On the other hand, an appraisal is a much more in-depth look at the property. Appraisals must also follow very strict guidelines in order to provide the most accurate information possible for the owner of the property.
Although evaluations aren’t under the same strict guidelines as appraisals, here are some of the guidelines they follow:
- Residential loan transactions qualify for an Evaluation if the loan transaction amount is equal to or less than $400,000.
- Commercial “Investment” Real Estate loan transactions qualify for an evaluation if the loan transaction amount is equal to or less than $500,000, and the loan is dependent on the sale of, or rental income derived from the real estate as the primary source of repayment of the loan transaction.
- Commercial Business (owner occupied) Real Estate loan transactions qualify for an evaluation if it is a business loan with a loan transaction amount equal to or less than the business loan threshold of $1 million, and the loan is not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment.
- Renewals for Commercial and Residential loan transaction Involving an existing extension of credit at the lending institution provided that:
- There has been no obvious and material change in market conditions or physical aspects of the property that threaten the adequacy of the institution’s real estate collateral protection after the transaction, even with the advancement of new monies; or,
- There is no advancement of new monies other than funds necessary to cover reasonable closing costs.
When you want to reassess your assets, going the route of a real estate evaluation is much less expensive than a full-blown appraisal. Also, with an evaluation, you can still gain valuable insight into the value of your property in order to make any big financial decisions moving forward.
Loan Restructuring
Instead of dealing with a whole new loan (and the higher interest rates that come with it), you can look into loan restructuring with your bank. How does a real estate evaluation play into this? Basically, an evaluation can get you in the right ballpark for how much your property is worth. Once again, this is much more affordable than an expensive appraisal, but it still gives you the valuable information your bank needs in order to make a decision on your current loan.
Banks can restructure a loan based on an evaluation, so although it won’t be as exact as an appraisal, you will be able to protect your assets easily by utilizing a valuation with loan restructuring.
Should You Purchase Property Right Now?
At the end of the day, the decision to buy or sell a property in the current economy is a personal decision. However, having all of the updated and accurate information about your property can help you make the best decision moving forward. What is certain is that CES can help you through our virtual appraisal and large network of professionals. Online home valuation is more important than ever as many people migrate and relocate to find not only the best deals on a home, but a home that lives up to their standards as well as budget.
Online Home Valuation
Here at CES, we know that you want the most accurate information in order to make the right decisions while battling rising interest rates. That’s why our commercial real estate valuation services are a great way to gain an understanding of your property’s value without all of the stress of a full-blown appraisal.
If you want to learn more about Collateral Evaluation Services and how we can provide you with virtual property appraisals, contact us today.
