Josh Flagg, a celebrity real estate broker, has warned potential homebuyers that they should sign contracts before interest rates rise.
As part of an aggressive effort at taming scorching hot inflation, the Federal Reserve increased its benchmark interest rate by 75bps last week. This move brought the benchmark federal funds rate to 3% to 3.255%, the highest level since the 2008 financial crisis.
The central bank has released new economic projections that show they expect interest rates will reach 4.4% by the end of the year. This suggests another three-quarter point increase. CME’s FedWatch tool indicates that there is a 60% chance for a 75-basis point increase, and a 40% chance for a 50-basis point rise at the Fed’s November meeting. One basis point equals one-hundredth of one percent.
Mortgage rates are being affected by the Fed’s moves. Freddie Mac, a mortgage packager, reported that 30-year fixed rates have increased to 6.7 percent from 6.29 percent a few weeks ago.
Flagg said in an interview that “I believe that if people are still able to buy right now, it’s a great time because interest rates will continue to rise.”
Flagg is set to publish a new book entitled “The Deal” on October 4. Flagg has already sold over $2B worth of property and is one of the top five real estate agents in Los Angeles.
His clients include Adam Levine of Maroon 5, Shonda Rhimes, producer of “Gray’s Anatomy”, and DJ Steve Aoki. Flagg’s most notable selling achievements include the sale to Tom Ford of the Holmby Hills estate belonging to late fashion icon and socialite Besty Bloomingdale for nearly $40 million. He also sold two of the most expensive pieces of land in Beverly Hills’ 500 block.
Flagg believes that homebuyers are most likely to get too focused on the price tag or nickel and dime.
You’ll lose every deal if you do this every time. And you won’t get the house you want unless you have an unlimited budget and can afford to purchase anything you want. He explains that even if you have an unlimited budget, no house can be perfect. “Everyone must make compromises, and that is something you need to recognize. You have to be clear about what is most important to your life.
Redfin reported that luxury home sales declined by 28.1% over the three months that ended August 31, 2022. This is the largest decline since at least 2012. Redfin Chief Economist Daryl Fairweather said that the fall was due to rising interest rates and inflation. This is the largest drop in luxury home sales since at least 2012.
“High-end house hunters are experiencing sticker shock as they witness the effect of rising mortgage rates on paper,” Fairweather stated in a statement that a higher interest rate could mean a monthly housing bill that is thousands of dollars more costly for luxury buyers. A person who was looking for a home worth $1.5 million last year might now be able to afford $800,000. This is due to the higher mortgage rates.
The median luxury home sale price rose 10.5% to $1.1million in the three months ended Aug. 31. This compares with an annual increase of 20.3% one year earlier and a record-breaking gain of 27.8% for the three months ended June 30, 2021.
Luxury homes are increasing at a slower rate than other homes. They increased 15.5% year-over-year to $335,000 in the three months ended Aug. 31, a slight decrease from the 17.2% annual increase a year prior and a record 19.7% gain during the three months ending on March 31.
Redfin points out that while high-end buyers tend to prefer cash payments, many people still take out mortgages, sometimes as an investment strategy.
Flagg admitted that home prices will eventually fall, but he stressed that the real estate market was cyclical and that there will be another price rise.
He asked, “Wouldn’t you rather lock in a rate for 30 years and have an easy monthly payment?”
He recommends that anyone interested in investing in real property does so immediately and keep it for as long time as possible.
Real estate is not a way to become poor. Flagg stated that you keep it, you hold it for as long as you can, and you try to get as much as you can because everything always rises over time. Flagg stated, “You can’t do the same with other investments.”