I’v been getting a lot of questions recently about the rise of mortgage rates and why in the world right now would be a good time to purchase a home. It’s a very valid question and one that you have to look at from a couple different angles. I think it’s important to point out that everyone’s situation is different and although it might make sense for one person to buy right now, it may not make total sense for a different person. Some of these factors to consider are your finances, location of move, job history/stability and much more. But rather than go down the rabbit hole, let’s simplify the current state of the housing market so that we can determine if right now is the RIGHT time to buy for you.
Interest rates have been on the rise this year. They’ve more than doubled since the start of 2022. Why is this? Simply put, inflation. When inflation is on the rise, it erodes at the buying power of a fixed rate of return. Investor’s need to demand a higher rate of return to combat how inflation is impacting their fixed rate of returns. So when mortgage rates rise, it lessons the buying power of a prospective home buyer because your monthly mortgage payment will increase, making it less attractive to purchase a home in that moment. If you compare the price of a home you could afford at the beginning of this year compared to right now, it can be a bit daunting.
I’m hearing a lot of buyers in the market right now say “I’m going to wait until rates come back down before I start searching for a home.” While that strategy isn’t wrong in theory by any means, I do want to point out that the same strategy is being considered by many other people. When rates come down, we will likely see a lot of buyers come off the sidelines and back into the market to capitalize on what would ideally be a “better deal” for the buyer. However, consider this… because rates are higher than they’ve been in recent memory right now, there is less competition of buyers out there. We are seeing buyers request more contingencies like inspections and appraisals. We are seeing some buyer closing costs be covered by sellers. And most importantly, we aren’t seeing as many bidding wars which is what was driving up the price of homes over this past year. Buyers are getting homes closer to asking price or even below, depending on the situation.
So, if you have talked with a lender, or you are in a financial position to purchase a home but you are waiting for rates to come down, consider this phrase – “Marry the home, but date the rate.” Essentially, if you are within your means to buy a home now, you can always refinance to lower your rate when they do drop. You could possibly request more contingencies than when large numbers of buyers re-enter the market. You might have less offers to compete against right now which strengthens your positioning and leverage. There are currently some advantages to buyers who are buying within their means and not at the very top end of their budget.
It’s something to consider as you navigate this volatile housing market. If you have any questions on the scenerios I presented here, feel free to reach out to me to continue this conversation or to begin crafting a plan that fits your needs.