Mortgage rates are higher, but you shouldn’t wait to buy.
As the Federal Reserve continues to ease inflation to normalize volatile monetary policy due to COVID-19, mortgage rates remain at their highest level in over 22 years. The Federal Reserve (the Fed) does not set mortgage rates, but its actions can influence mortgage rates, personal loans, savings accounts, and many more items that affect consumers positively and negatively. During COVID, the Fed took several actions that pushed rates down to historic lows, creating mortgages with a 3 percent or less rate. As the economy has recovered, mortgage rates have more than doubled, causing home buyers to sit on the sidelines to see if rates will fall again.
However, buyers would be better off buying now instead of waiting.
A majority of housing economists and large-scale mortgage lenders have been predicting mortgage rates will drop more than a percent in the next year as inflation continues to fall. Buyers should consider a new adage: “Date the rate, marry the house.” The theory behind this catchphrase is to buy the house you want for the long term and refinance when rates drop in the short term. This way, a buyer can take advantage of current prices and buy sooner rather than later to avoid paying a high purchase price later.
Home prices continue to increase, especially locally. While some parts of the country have seen price declines, that was focused in markets where price appreciation was the highest in the last three years. Home prices in Boone County have continued to increase, even as sales have declined since mortgage rates hit 5 percent. The average price for a single-family home in Boone County increased almost 5 percent from last year.
Another reason to buy now and refinance later is less competition from other buyers in the market. As the 30-year fixed rate mortgage remains above 7 percent, some buyers are waiting on the sidelines to see if rates come back down; for other buyers, it can be an affordability issue. When mortgage rates do decline, it will cause more buyers to jump back into the market, pushing up prices even higher. The further rates drop, the more buyers will take advantage. It’s been estimated that if mortgage rates fall to 6 percent, more than three million households can purchase a median-priced home.
That’ll make buying competition even more stiff than it is now.
Everyone wants to brag about how low of an interest rate they got when they purchased or refinanced their home. Unfortunately, no one’s bragging anymore, and current buyers are paying over 7 percent or higher. The concept of “date the rate, marry the house” gets buyers into a home now with a fixed rate mortgage they can afford and refinance when rates come back down.
The housing shortage crisis is not ending anytime soon, and many current homeowners are “rate locked,” keeping them from selling; both issues should cause prices to increase and competition to remain stiff. Find the house you love and buy for the future benefits, and take advantage of current market conditions.
Brian Toohey is the chief executive officer for the Columbia Board of REALTORS