Why Waiting for Lower Mortgage Interest Rates Is Risky
If you’ve paid even casual attention to the real estate market, you know the current trends of social distancing, lower interest rates, and increased pandemic-related financial risks are all affecting future home buyers.
We know. Headline after headline about what you should and shouldn’t do in the real estate world can feel exhausting, but understanding the fundamentals of what the market is telling us now can be a sobering reminder of how vital practical advice is during these times.
Speaking of sobering…let’s assume all that “red water” consumption at home hasn’t affected our financial decisions.
Historically low mortgage rates are a big motivator for home buyers right now. In 2020 alone, rates hit new record lows sixteen times, and that trend continued into the early part of this year.
Many hopeful home buyers are now wondering if they should put their plans on hold and wait for the lowest rates imaginable.
Those “rock-bottom” rates will arrive any day now, boys…
The reality, though, is that acting sooner rather than later is the better choice, if you’re ready to buy a home.
According to Greg McBride, chief financial analyst for Bankrate, “As vaccines become more widely available and a return to normal starts to come into view, we’ll see mortgage rates bounce off the record lows.”
I knew those vaccines would cause trouble!
While only a slight increase in mortgage rates is projected for 2021, some experts believe they will start to rise. (Even over the past week, the average mortgage rate ticked up slightly, reaching 2.79%. This is still incredibly low, though, compared to historical trends.)
According to Freddie Mac, “Borrowers are smart to take advantage of these low rates now and will certainly benefit as a result.”
Here’s why.
As mortgage rates rise, the increase impacts the overall cost of purchasing a home. The higher the rate, the higher your monthly mortgage payment, especially as home prices rise too.
Sam Khater, chief economist at Freddie Mac, says, “The forces behind the drop in rates have been shifting over the last few months, and rates are poised to rise modestly this year. The combination of rising mortgage rates and increasing home prices will accelerate the decline in affordability and further squeeze potential homebuyers during the spring home sales season.”
Ah, beautiful spring. The perfect representation of rising mortgage rates and the decline of affordability for home buyers.
What exactly does this mean for buyers?
Right now, the inventory of houses for sale is also at a historic low, making it more challenging than normal to find a home to buy in many areas. As we enter the typically busy spring buying season and more buyers hit the market, it will likely become even harder to find a home in the coming months.
Tracking housing inventory and gauging market demand help determine where prices will head. It doesn’t simplify the process, but it does yield insight.
Len Keifer, deputy chief economist for Freddie Mac, recommends taking advantage of both low mortgage rates and the opportunity to buy. “If you’ve found a home that fits your needs at a price you can afford, it might be better to act now rather than wait for future rate declines that may never come and a future that likely holds very tight inventory.”
Maybe that fortune cookie from last night’s takeout was onto something.
Bottom line.
While today’s low mortgage rates provide great opportunities for home buyers, they’re not going to stick around forever. If you’re ready to buy a home, let’s connect, and we can take advantage of what today’s market has to offer!
