If you were to ask your real estate agent when the best time is to buy a home? They will always say ‘now.’ But as of the end of 2018, as housing prices and mortgage rates are rising, this actually could be the best advice.
According to the chief financial analyst at Bankrate, mortgage rates have gone up sharply in the past year. As of May 2018, the benchmark 30-year mortgage rate was 4.8 percent, and we have actually seen that rate touch 5% since then. Back in March 2018, rates were 4.54%. If you got your mortgage in 2016 or 2017, you probably had a rate well under 4%. For a $200,000 mortgage, the increase from 4.54% to 4.78% means $10,300 in additional interest over 30 years.
The broad trend is pointing to higher rates over the next several years.
So, here are the reasons to consider buying a home with the rates going up:
#1 Rates are likely to continue to rise
During the aftermath of the crash, the Fed kept its key interest rates artificially low to goose the economy, especially the housing market. This led to rates such as 3% or even slightly lower for 30-year fixed rate mortgages. This was an artificially low interest rate environment in response to a global financial crisis. It was not going to last forever, and those days are over. We are returning to a ‘normal’ interest rate environment in the high 4% and low 5% range. The US economy is fairly strong, unemployment is low, and wages are going up. All of these factors point to rising, not falling, interest rates.
So, if you are on the fence about buying a home, keep in mind that it is unlikely you will see rates fall significantly in the next year or two. The lower the rate, the more home you can buy. So this is a strong reason to consider pulling the trigger on a purchase.
#2 Housing Market Has Recovered and Prices Are Rising
It is not only mortgage interest rates that are on the rise. Housing prices have been rising in most areas of the country. In 2018, the Federal Housing Finance Agency boosted the maximum conforming loan amount for mortgages that meet Fannie Mae and Freddie Ma guidelines in most parts of the country to $453,100, from $424,100 the year before.
These loans are thought to be less risky by lenders and they are allowed to offer a lower interest rate. Raising this conforming limit means the borrower is able to buy a house without having to get a jumbo mortgage that requires a higher interest rate and more money down.
Home buyers in the higher cost areas have access to bigger mortgages up to $679,000.
Also keep in mind that a shortage of homes for sale in may areas of the US is leading to a lot of pricing pressure. High demand ZIP codes around the US mean that some home sellers are seeing multiple demands for their homes. People may even get into bidding wars for homes in the most desirable areas.
#3 There Is a Feeling to Lock in A Rate Before They Rise More
A lot of potential home buyers have been watching the rising rates with concern. And given the strong economic news we tend to be hearing, they know that the rates will probably not come down soon. The fact that rates are continuing to go up slowly actually increases demand for the first time home buyer.
Increasing rates also tend to push uncertain buyers into the market. It has been estimated by some experts that projected monthly payments to buy the same property will rise at least 10% in the next year.
#4 Renting Is Often Not Much Better
Many people have discovered in many areas of the country that rental prices have been rising, and this is pushing them to go ahead and buy a home now. For example, the most Rental Affordability Report from ATTOM Data Solutions found that renting a three bedroom property is more expensive than buying a median priced home in more than 50% of major markets.
#5 Rates Are Still Not That High Historically
Some experts contend that while rates and prices are up a good deal since 09, improving incomes, employment and the US economy mean that housing is still affordable in most of the US. The recent Real House Price Index from First American, stated that consumer home buyer power is up 14% since 2011, and real home prices, adjusted for changes in incomes and rates, are 32% lower than their peak in the boom.
When you consider these factors, it really makes sense to go ahead and buy a home in 2018 or early 2019.