HGTV stars Drew and Jonathan Scott revealed how homeowners and landlords can combat rising interest rates.
In an interview with Quartz, the Property Brothers discussed the impact of interest rates over 7% on the real estate industry.
The average interest rate for 30-year fixed-rate mortgages increased from 7.13% to 7.24% this past week, according to CNBC.
Put simply, interest rates are the price paid to borrow money.
When mortgage rates rise, lenders see an increase in monthly payments on their loans.
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. Even the tough thing is anybody who’s looking to, you know, refi or anybody who’s looking to pull equity out of their home, it’s a tough time because you’re not getting what you wanted with the high rates,” Drew said of the current interest rates.
COMBATTING THE HOUSING CRISIS
Drew said that high interest rates are forcing many to find new and creative ways to combat increased costs.
One of these creative ideas is converting a garage into an ADU (auxiliary dwelling unit).
“Having tenants, it’s a great way to sort of offset the crisis as well as help people earn more money,” Drew explained.
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 landlords for the first time because of the housing crisis.
Jonathan argued that building new projects, affordable housing, and investing in ADUs are all viable solutions to the housing crisis.
HOPE IS ALIVE
Drew added that the outlook isn’t completely bleak for homeowners, as Jonathan agreed there’s still the opportunity to do well.
“7% is not bad. It’s not great, but it’s not bad. But it is sort of at that tipping point where you want to be a little more cautious with what you’re putting your money toward and how much money, how much leveraging you’re doing. And so that’s what we say,” Jonathan told Quartz.
The brothers warned that the worst mistake homeowners can make amid high-interest rates is over-leveraging.
Over-leveraging occurs when an investor borrows more than they can pay back.
“There are some people who just over-leverage and they don’t realize that this is when it becomes a problem when your mortgage is up for real and your rate is going up,” Jonathan warned.
Jonathan and Drew cited one of their clients who put a hundred grand on a credit card to service the debt they needed to buy property.
“I’m like, you’re, you are gonna lose everything,” Jonathan recalled.
Current mortgage rates and predictions
Mortgage rates for all types of mortgages are continuing to incrementally increase, according to the latest data shared by Forbes.
As of 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 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,” Bright MLS chief economist Dr. Lisa Sturtevant said.
“Overall, though, 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 towards [lower mortgage rates] might be slow and bumpy.”
Jonathan and Drew are launching a new show with HGTV called Backed by the Bros, where they help aspiring investors get into real estate.
“I love that people want to try and create more opportunities for themselves,” Drew said of the show.
Backed by the Brows is coming to HGTV on June 5 at 9 pm EST.
For those wanting to learn about real estate in the meantime, check out our story on one homeowner who feels like a “prisoner” after securing a low mortgage.
Or for those looking to read more on unique housing, check out this story on a Canadian tiny home village.
