Buyers and sellers across the country are wondering what to do. Should they wait and hope housing economists are right about mortgage rates dropping by the end of the year? Or should they take action now to avoid even higher rates if 8% is more likely?

Here’s where you come in as a knowledge broker—educating yourself on a daily basis about what’s going on in the market and what it means for the buyers and sellers in your area. 

Being a knowledge broker means knowing where to begin when someone asks, “Does it make sense to buy a home in this market? Should I wait for rates to go down? Or should I buy now before rates go even higher?” 

First, you need to know what you expect—and what you’re doing to prepare for it. 

Are 8% mortgage rates a possibility? And are they likely? 

Logan Mohtashami of HousingWire had some thoughts on the latest trend in mortgage rates in this article, specifically as it relates to the gap between it and the 10-year Treasury.  

He also addressed the question of whether mortgage rates could hit 8% this year. 

Yes, they can, but it would require the economic data to stay firm. Short-term, as long as the economy outperforms, 8% is in the works.

Logan Mohtashami

Lead Analyst for HousingWire

That’s similar to what host Byron Lazine said in last week’s Knowledge Brokers Podcast episode when he and co-hosts Lisa Chinatti and Tom Toole were discussing which outcome was more likely: a significant drop in mortgage rates to around 6% by the end of 2023 or a further climb to 8%. 

At this point, the most bearish prediction on mortgage rates (courtesy of Fannie Mae) seems the most likely of all the proposed scenarios involving a drop in rates. 

So, what can we expect if rates hit 8% this year?

What 8% mortgage rates could do to the housing market? 

We know it’s not a certainty that rates will top 8% before heading in the other direction. But it is possible. And it wouldn’t come without a cost for the housing market. 

Looking at the data…your transactions have crashed and are crashing. (Fewer) people in the fourth quarter of 2023 are going to be able to afford to make a real estate transaction than in the fourth quarter of 2022. That’s just the truth. There’s less opportunities out there. And… by the way, Zillow said if we hit over 8% on the 30-year fixed…they’re talking about 3.3 million seasonally adjusted annualized transactions—not the four (million) that we’re sitting at. This is far, far from 5.8 (million).

Byron Lazine

Fewer transactions mean more agents will be competing for the leads that are likely to convert this year. And that makes it all the more important for you to stand out from the competition. 

A foundational part of that is to prepare your business in such a way that every interaction with a potential client is completely free of anything that could communicate desperation:

  • A scarcity mindset
  • Impatience
  • Lack of confidence in your ability to compete

Effective leaders recognize that preparation involves acknowledging the challenges you face and meeting them head-on. Trial and error is part of this, and you will make mistakes. 

What’s important is that you own them, learn from them, and share what you’ve learned with others who can benefit from the lesson. 

What can you do to prepare your business for 8% rates?

So, how do you prepare your real estate business for mortgage rates at 8%? 

At that rate, just having more leads than anyone else in your market is not enough. 

Obviously, lead generation is still important. But standing out in a meaningful way for the leads you engage with is ultimately what will help you meet your transaction goal for the year.  

To illustrate this, Byron talked about a mistake he made in his business that cost him a significant amount—and what he learned from it. 

I was trying to hedge against what I knew was going to happen in the fourth quarter of last year…I went out and made a massive mistake with my business, and I over-indexed on grabbing online leads. This was a financial mistake, it was an operational mistake. It was also just kind of a good lesson on the reality of what happens in real estate…. I made the mistake of having the majority of the leads, and there’s only going to be a certain number of transactions.

Byron Lazine

He mentioned Tom Ferry, who would be sharing some housing market stats at the Success Summit in Dallas. There are roughly 200 million online leads—and only four million transactions. 

Good leaders own their mistakes and learn from them. And now, with a clearer idea of what’s going to be critical to his business going into 2024, Byron is pivoting his investment strategy—away from amassing online leads and into a more actionable place: his brand. 

A strong real estate brand is what will enable you to stand out from your competition in a market with far fewer transactions. That brand instantly communicates the qualities your ideal clients want to see in a real estate agent:

  • Responsiveness and accessibility
  • Competence and the drive to get things done
  • Understanding of the market—and of people
  • Ability to negotiate with knowledge and (earned) confidence
  • High standards for the quality of their work and service

Creating a brand that communicates these qualities (among others) and makes you easy to spot in a sea of online marketing takes a real investment. But it’s a critical part of preparing your business for a market with fewer transactions and longer lead times

I’m preparing for what is to come. And that’s my form of optimism.

Byron Lazine

Your brand won’t appeal to everyone

In a market like this one, it’s becoming easier to distinguish agents who are willing to do the work and adapt from those treating real estate as a side gig. 

But even among those willing to invest more time and effort in keeping their business going strong, we’re seeing different approaches to articulating the reality of what’s going on in the market and what it means for buyers and sellers. 

Having discussions on the facts of the current housing market, including facts that sound discouraging to potential buyers, is still necessary. But different approaches to those discussions resonate with different personalities

Some lean toward a more optimistic approach. But the word optimism means different things to different people. There’s a difference between blind optimism and an optimism born of knowledge, thoughtful preparation, and a firm belief that things will work out as long as you do what needs to be done. 

That said, the word “optimism” can still be a bit polarizing. 

The more danger-oriented mindset is less motivated by an overtly optimistic approach. They bring up the grim facts to remind themselves not to get too comfortable. If they react to optimistic statements about the market, it’s more to re-orient themselves to what motivates them to excel. 

In the same way, those with a more optimistic view will react to a more danger-oriented view by re-orienting themselves to the mindset that works for them

Some are more oriented toward danger and conflict while others prefer a more sanguine approach, focusing more on what’s reassuring to the people around them—as long as they’re doing what’s necessary to prepare for the worst. 

Ultimately, we need both types of realism. And both would find extreme optimism and extreme pessimism about as helpful as they are realistic—which is to say not remotely.

A brief exchange between Byron and Lisa (in the same episode) demonstrates the two perspectives, with both making solid points. 

I’m optimistic. I think Q4 is going to be hard. I think Q1 is going to challenge me in ways that it’s never challenged me. I’m not necessarily scared or nervous. I’m gonna start making some pivots within the company over the next couple of weeks.

Lisa Chinatti

You’re optimistic about your business. That’s different than being optimistic about the overall market.

Byron Lazine

I’m optimistic that my business is going to do well through the market. I’m optimistic that the market is going to correct in a way that’s going to enable this industry as a whole to level up in professionalism.

Lisa Chinatti

If agents are like this, clients can be, too. And having real conversations is the best way to find out what motivates a particular client—as well as what they really want in the long term. 

The Stockdale Paradox

Tom Toole suggested the Stockdale paradox, explained in Good to Great, as a driving force behind the optimism he sees in agents like the ones who responded to the BAM-1000watt Agent Sentiment Index survey

These are agents who are acknowledging the brutal realities of today’s market and are taking action to adapt their strategy, much as he, Byron, and Lisa have done in their businesses. 

It’s a stoic acceptance of business realities coupled with an unwavering faith in the eventual triumph based on what you’re doing in your company…. If you’re not accepting the facts in the market to make these decisions, that’s who’s in trouble.

Tom Toole

What stands out when listening to all three are the points on which they agree. And together, those points make an argument for a clear-headed view of the market, a readiness to do what needs to be done, and a refusal to waste time worrying about market conditions that will spell trouble for those who don’t prepare for them. 

It’s not worrying or dwelling on the negative to bring up or discuss facts that sound negative. If you’re reading this, you know well enough that keeping your head in the sand and closing your ears to unpleasant realities is no way to run a business. 

Learning how to communicate those realities and see the opportunities behind them is what will help your clients make the best decisions for them. Every decision comes with trade-offs.

Part of your job is to help them identify the trade-offs they can live with. 

How to discuss 8% rates with your buyer clients 

Prospective buyers are not loving the upward trend in mortgage rates any more than agents are. They’re the ones facing higher mortgage payments, after all, whether they’re buying their first home or selling their current one to move into something larger, smaller, or in a different location. 

Get used to hearing questions like these (if you aren’t already): 

Will rates go up or down from here? And whatever they do, does it make sense for me to buy when my new monthly payment will be more than I’m paying now?” 

Ultimately, it depends on each buyer’s situation. But from a bird’s eye view, it does make sense to point out a simple fact history has confirmed again and again in the housing market: 

What I can also say with certainty is that these home values are going to go up in the future.

Byron Lazine

Byron gave an example of a Phil Jones question agents can ask their buyer clients who are on the fence about applying for a mortgage: “Do you believe you’re gonna make more or less money over the next 10 years?” 

In a 10-year period, home values always go up 40% or more. You can track that back. You can show them that data….Those are the types of insights that buyers need to have to alleviate the fear and the pain they’re going through.

Byron Lazine

We know rates aren’t at 8% yet. As of August 22nd, they’ve hit 7.49%. It’s anyone’s guess whether they go up from there. But 8% is certainly possible.  

And no one’s arguing that the difference in affordability between a home purchase at 6% and one at 8% is negligible. Buyers will feel the difference in their monthly payments. 

The good news? If they’re likely to be earning more in the coming years, that payment will, as Byron pointed out, only become more affordable. And the value of the home they purchased will most likely increase by around 40% over the next ten years. 

In other words, even locked into an 8% rate, they’ll still be better off financially in ten years than they would have been if they’d continued renting. 

That doesn’t negate the fact that many would-be buyers simply won’t be able to afford to purchase a home at 8% rates. There will be fewer transactions compared to what we could reasonably expect at 5%. 

But for buyers who can find a way to become homeowners, even if it means buying a home that’s smaller, needs more work, or is in a less ideal location than the home they were originally looking for—just to get out of renting purgatory and become homeowners—the advantages will outweigh the initial costs of taking that leap. 

So, to double down on what Byron learned from experience, the play is not to invest even more in online lead sources but to invest in your brand

And that means— 

  • Creating and posting high-value content every day on the platforms your audience uses
  • Making your content easy to recognize with consistent branding design (colors, fonts, phrasing, etc.)
  • Responding to communications from clients and prospects—phone calls, DMs, emails, comments, and text messages—in as timely a manner as possible.

With that last one, Spencer Rascoff’s latest innovation, heyLibby—an AI-powered chatbot tool for your website, social media, and email—could be the best thing that’s happened to your real estate business this year. 

What the alternative—falling rates—could mean for the market?  

It’s possible rates could go down from here in the coming months. The Mortgage Bankers Association and seven others predicting a drop in mortgage rates to around 6% by the end of the year could actually be right (with some wiggle room for details). 

  1. Mortgage Bankers Association—Average 5.9% in Q4 2023
  2. Morningstar—Average 6.25% for 2023 and 5.0% in 2024
  3. Goldman Sachs—6.4% by the end of 2023; averaging 5.9% in 2024
  4. National Association of Realtors® (NAR)—6.4% by end of 2023; 6.0% average in 2024
  5. Morgan Stanley—Starting 2024 at 6.0%
  6. Moody’s Analytics—Average 6.5% for majority of 2023; 6.0% by end of 2024
  7.—Starting 2024 at 6.1%
  8. Fannie Mae—Average 6.6% in Q4 2023; down to 5.9% by Q4 2024

So, allow us to speculate on the possibility of 5.9% mortgage rates by the end of 2023. Unfortunately, that outcome would not be without consequences, as Byron points out here: 

Here’s the conundrum for real estate professionals: rooting for the 30-year fixed to drop sharply and significantly is also rooting for large waves of job loss across this country. So, the stronger the economy, the longer we’re going to have higher rates… You have this great, thriving job market—very low unemployment. You have a surplus in jobs. You have a consumer who continues to spend month over month, who appears to be very strong—a lot of this because most current homeowners are locked into low fixed costs on their homes, so they do have the money to go out there and enjoy. And so, rooting for a sharp decline in the 30-year fixed so you can squeeze out a couple more buyers in your market is basically rooting for a sharp recession. I don’t think anybody should be rooting for that.

Byron Lazine

Final takeaways

What we have now with mortgage rates creeping toward 8%, home prices steadily rising, and inventory still at historic lows is not what anyone would consider normal. But there are still advantages for buyers who are financially able and motivated to purchase a home. 

So, while you definitely want to steer clear of lines like “It’s always a good time to buy,” and (even worse) “Marry the house, date the rate,” having conversations with potential buyers to better understand where they’re coming from is always a good idea. 

It’s those conversations that make you the kind of agent your clients remember as the catalyst for one of the best decisions they’ve ever made.