Divorce already takes an emotional, mental, and financial toll on the family. The current real estate market has added to that with increasing interest rates, declining house prices and diminishing values in certain asset accounts
Nationwide, there’s a shortage of available houses – especially at lower price points – compared to the number of would-be homebuyers. For a while, there was tons of talk of offers being made above asking, inspections being waived, no contingencies, bidding wars, and so on, but, as the Fed has raised interest rates, demand has cooled a bit.
Compared to this same time period last year, interest rates have doubled, so the average homebuyer can’t buy nearly as much house with the same amount of money. For example, if a couple bought at home last March for $400K and put 20% down, they likely had a rate close to 3% so their principal and interest payment on a $320K loan amount would be $1349. If they were to buy the exact same house with the same down payment with today’s interest rate of 6.5%, the principal and interest payment would be $2022… $673/month higher
So, as divorce negotiations are in play, couples are thinking about either selling their family home and buying something new or otherwise refinancing the current home into one spouse’s name and buying out the other spouse’s interest. This brings up many challenges with today’s housing market and interest rates.
For the spouse keeping the home, a refinance will be expensive because interest rates are significantly higher. Typically, in a divorce negotiation, a decree is going to dictate that the refinance needs to happen within a relatively short time frame (typically 3-6 months) after signing the agreement so it doesn’t allow much time for rates to come back down (which we only see predictions that they will continue to go up)
The rental market isn’t much better. There is a lack of inventory and monthly rent prices have been climbing as well so it has made more difficult and expensive for one to rent instead of buy.
As decisions are being made regarding selling or refinancing, it is important that attorney’s can ensure their clients can perform to the language in the decree. For example, if a borrower has to refinance in 3 months, the attorney should have a pre-approval from a lender with an interest rate with cushion to ensure they will still be able to qualify in 3 months. Financial consideration should also be made regarding the division in equity and increased costs and higher payment the borrower keeping the home will incur.
