One of the issues that many homebuyers deal with is seeking a home loan. Currently, lending rates for 30-year fixed mortgages are hovering around 7% and 8%, depending on the term and other variables. This has left some hopeful homebuyers a bit deflated, wondering if they should hold off on their home-purchasing plans.
But is that a wise strategy? It depends. Below are some answers to a few questions about interest rates that can help you make the right decisions in the home-buying process.
Are Interest Rates Too High Now to Purchase a House?
Interest rates are indeed significantly higher than they were about two years ago when people with a good credit history could obtain mortgages with a lending rate between 2% and 3%.
But you can’t focus on what you missed, just like you can’t wish you bought Apple stock when it was less than $20 a share. It does not matter what happened in the past. The question you need to ask yourself is whether investing in a house now is a good decision for you moving forward.
Looking at a longer time frame than just the last few years is helpful when considering interest rates. Most mortgages have a 30-year term. If you had taken out a mortgage 30 years ago in 1993 and never refinanced, you would have paid a rate about the same as it is now: the average rate in 1993 was 7.31%. But let’s take an even longer look. In 1981 rates were above 16%, and in 1973, they were above 8%. The bottom line? Historically, current mortgage interest rates are not wildly off-track.
Many economists believe that 4% or lower rates from the last few years were an anomaly and that current rates are at the right level. From a macroeconomic perspective, “cheap” money at low-interest rates can have inflationary effects, increasing the amount of money in circulation as people borrow more than they should to purchase goods on credit. In the end, mortgage money may have been “cheap” a few years ago, but house prices were also very high, which offset some of the benefits of low-rate loans.
But whatever the “right” level is, current interest rates are not particularly problematic. Interest rates fluctuate, and the numbers we are seeing now are consistent with what we have occasionally seen in the past. The good news is that if you buy now and rates go down again, you will likely have the opportunity to refinance. If they go up, you will be glad you obtained your mortgage now.
How is the Housing Market? Is it a Good Time to Buy?
The housing market in the Inland Pacific Northwest is softening a bit; house prices, on average, have trended slightly downward over the last year. At the same time, there are not a lot of houses on the market, so sellers have been able to sell their homes relatively quickly and at the prices they have been asking.
For homebuyers, rising interest rates may mean less competition for the houses on the market, as potential buyers sit on the sidelines hoping that rates go down. The short answer is this: if you find a home you want and can afford, you should consider making an offer. There are no guarantees about what will happen in the future.
At The Legacy Group, we do not anticipate a significant downturn in the local housing market that suggests you would lose equity if you were to buy a house now. For example, we are currently seeing a lot of housing starts in the inland northwest, indicating that developers are bullish on the local housing market. Long-term, a single-family home is a good investment.
If Interest Rates Should Not Dictate My Decision, What Should?
The essential consideration in deciding to buy a house is whether it benefits you and your family financially and practically.
If you are currently renting, take into account the fact that every dollar in rent that you pay every month is not gaining you any equity; it is money spent that you cannot recoup. In contrast, you generally increase your equity when you make a monthly mortgage payment. Moreover, if your property increases in value (from market forces or your investment of funds and effort), your equity will grow even more. Despite your mortgage debt and payment, you have an asset with value. The same cannot be said when you rent.
In addition, it is often the case that you get much more for your housing dollar with a house: more space, a yard, and the pride and control that goes with home ownership. When seen in that light, weighing the costs and the benefits you receive regarding quality of life for your family, you may find that interest rates are practically irrelevant. Between renting and buying, long-term, buying is the better move.
There are some other considerations, however. If you have a good income, good credit, and funds saved up for a down payment, buying is a relatively straightforward proposition. But if getting into a house would be a struggle because current interest rates are so onerous that you will have difficulty meeting all your budget obligations, this may not be the right time for you. Buying a house is a big financial commitment, and you may need to improve your financial position before making your dream of home ownership a reality.
Whatever your decision, don’t obsess over interest rates. Determine how much you can afford to pay per month and then calculate how much house you will buy in terms of overall price at current rates. If you find a home you like in your price range, you will soon find that interest rates don’t count for much when it comes to the joys and benefits of owning your own home. And as noted above, refinancing is always an option at a future date if interest rates go down.
If you are interested in purchasing a home and would like more information about financing or the housing market in eastern Washington, northern Idaho, or Montana, contact The Legacy Group today. We’d love to help you find your new home.