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What do you need to know about rising interest rates? When it comes to the cost of borrowing to purchase a home, much depends on the Federal Reserve and its actions regarding lending rates. The Fed’s biggest concern right now is inflation, which has proved to be stubbornly high over the past few years. Not only are housing prices rising too quickly, but the cost of everything is skyrocketing. During the pandemic, the Fed artificially reduced lending rates to unheard-of levels in order to sustain the economy during that tough time. This caused a frenzied market where homes were flying off the market for record prices. While a lot of people made a lot of money this way, it wasn’t a healthy place for the market to stay. Historically, real estate has been a long-term investment, not a short-term cash grab, and the increase in rates has only served to push the market back to a more normal pace. With all that being said, there are three things you should be aware of with regard to the environment of rising mortgage interest rates.
1. It’s actually a better time to buy a home. Yes, rising interest rates can mean a higher mortgage payment, but look at it this way: During the panicked pandemic market, home prices soared and buyers were forced to compete with a multitude of others just to land a deal. In this more normal market, home prices are much more reasonable, and you stand a better chance of getting the home you want with less competition. If you buy now, you’re looking at a better selection, at a better price, and with better terms.
2. You can buy down the rate. While the rates may look daunting, a savvy buyer knows that there are clever ways to get them down. One of the most popular and practical ways to do this is by temporarily buying down the rate. This involves paying an upfront fee in order to secure a lower rate for a given period of time. Using this method, you can pay a lower, and sometimes much lower, rate for a number of years, easing into the current rates. The best part is that, in the current market, you may not even have to pay the upfront fee yourself. By negotiating wisely, you can often get the seller to pay by way of concessions from the home sale.
3. Nobody knows where rates will go. It’s impossible to predict with certainty where rates will be in the future. Many look to it being an election year, and expect that there will be major changes, and while it’s true that the lead-up and results of the election will cause some changes, they likely won’t be as major as some people think. Five percent is likely as low as rates will go for the foreseeable future, and that’s the absolute best-case scenario. If you plan on waiting for the rates we saw during the pandemic, you are probably going to be waiting for a very, very long time. Meanwhile, home prices will continue to rise without you benefiting from it at all. Buying now means that, at the very least, you can start building equity in that home sooner.
With all that being said, it’s pretty clear that the best time to buy is now. Waiting will only mean that you face more competition, worse selection, and less opportunity for concessions, and that’s assuming that your ideal rate environment ever comes back around. If you’re ready to explore what buying today might look like for you, please feel free to reach out by phone or email. Together, we can get you preapproved and ready to move on the home of your dreams.
