As a real estate investor who has weathered many market shifts, I understand the temptation to wait for the "perfect" market conditions before making a purchase. However, I believe current buyers
Are current mortgage interest rates a reason not to purchase a home?
Dated: August 24 2023
This question is being asked by a lot of potential home buyers. And unfortunately, it's being answered sometimes without perspective or thoughtful discussion. Today, I'd like to provide some of both!
Let's look at the history of 30-year fixed-rate mortgages. Yes, interest rates are higher today than they were for many years prior to 2022. From 2009 to 2021, we saw home mortgage interest rates dip below 5% and stay there. For the most part, rates hovered around 4% for the bulk of years 2012-2020. In 2021, rates hit an all-time low a bit below 3%!
The thing is, prior to 2009 mortgage interest rates were always higher than 5%. But wait, for the 30 years from 1973 to 2003, interest rates were always higher than 6%, and sometimes much higher, reaching as high as 16.63%. The average rate over the course of those 30 years was higher than you might expect, coming in at 9.8%. That's right, for your parents, grandparents and anyone taking out a mortgage during those three decades, the average interest rate was nearly 10%.
It's human nature to remember the extremes in life, good and bad. The window of 3% interest rates was great, but short lived. That low rate was never sustainable and there was only one way for the rates to go from there -- UP!
For those who think they should wait to purchase a home until rates drop back to 3%, they should think again. In my opinion, rates will likely never be that low again during our lifetime. What about 4%? ... Maybe. What about 5%? ... probably. How long will that take? It is not really predictable, but I do not think it will be anytime soon.
But the real question should be, do current interest rates make purchasing real estate a bad investment? And the answer is, absolutely not! Purchasing a home is still the single biggest investment that most people will make and has the potential to positively change the trajectory of their lives. And with a wise purchase, real estate has the potential to appreciate each year at a rate that is greater than the mortgage interest rate. But also, real estate is an investment. You're not paying interest on a purchase that will get used up, as often happens with credit card purchases at much higher interest rates.
More than anything, I think buyers should know that this is the new normal. It's not a feasible strategy for home ownership to think you're going to wait it out, or that current mortgage interest rates are an anomaly that will have a correction. People are still buying and selling homes every single day, and that will continue regardless of interest rates.
The Future Still Looks Good
When it comes to purchasing a home at current interest rates, you don't have anything to lose. If rates do come down by 1.5% or more, you won't be stuck with a higher rate. That's the beauty of re-financing! There are also Adjustable Rate Mortgages (ARM) that have become relevant in this new market. Options abound and you have choices!
Don't sit on the sidelines. Adapt to the new market conditions, plan your purchase, and do not let anyone or anything get in the way of your home ownership dreams.
A little epilogue...
It costs money to borrow money. Unless you're a cash buyer, you're going to pay someone to finance your purchases. If you own a credit card, you're doing that with every swipe, and those interest rates can be double, triple or even quadruple the rate for home mortgages! The average credit card interest rate in the U.S. is currently more than twice the rate for home mortages, and credit card debt is soaring. U.S credit card dept increased by $45 billion from Q1 2023 to Q2 2023, marking an all-time high.
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