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Interest Rates are Up, So Why Buy Now?

November 17, 2022 | 4 minute read

 

Rising interest rates have caused some potential homebuyers to hit pause while shopping for a new house. It’s a predictable reaction to the cataclysmic swing in the market since mid-2021. 

As of November 2022, loan interest rates are averaging around 7% for a conventional 30-year mortgage. For reference, in August 2021, the interest rates were hovering at just around 3%. Runaway inflation and a tight labor market have created a need for economic adjustment. To quell that inflation, the Federal Reserve Bank has raised the interest rate, which makes borrowing money for a mortgage a little more expensive.

Despite the rising rates, there are still plenty of reasons to stick to your plan to buy a new house if you are in the market. Here are four motivations to get off the sideline and buy that home you have your eye on.

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1. Interest Rates are Expected to Continue to Rise

Just when you thought it couldn’t get any worse, it likely will. The San Francisco Federal Reserve Bank President expects rates to continue rising at least into 2023

That means we may expect one or two small hikes that could still increase the base rate. If you are set on buying a new home in the next 12 months, don’t dilly-dally. Talk to your personal lender, who can help you lock in a rate that isn’t at its peak yet.

2. Less Competition for New Houses

Even through the summer, we saw a seller’s market as buyers were waiving inspections and paying thousands of dollars over the asking price. Homes were flying off the market, sometimes just hours after they were listed. 

The market is slowly starting to return to normal. In September, there was a 3.2-month supply of homes on the market, according to the National Association of Realtors. At the same time a year ago, the supply was at 2.4 months. 

That supply number means it would take 2.4 months to sell all the houses listed. It’s still not back to the six-month supply — which is closer to normal — but it’s getting there. 

The uptick in interest rates has caused housing prices to stabilize and brought more market equilibrium. While sellers are trending toward accepting contracts with contingencies or conditions (like an inspection), buyers have less competition when bidding on their dream homes. 

3. Refinance After Rates Drop

Interest rates rarely stay static, they often go up or down. In 2019, the average 30-year mortgage rate was 3.94%. The November 2022 rates of over 7% are still better than an 18-year period from 1974 to 1991 when rates didn’t drop below 9%. 

In 1981, the average interest rate for a 30-year loan was a record high of 16.63%. For home buyers, context is important to understand. There is a chance that the current rates will level off and eventually drop.

That means there are ways to offset the high mortgages for buyers who plan to remain in their homes for the long term. One is to adjust your expectations for what you can afford and consider buying a house that you can improve as the markets return to normal. The other is to pay more now, knowing you can possibly refinance later when the storm ends.

4. Homeownership Can Be a Forever Investment

It’s never a wrong time to buy a house if you’re committed to home ownership. Interest rates rise and fall over time as markets adjust. 

Regardless of the market forces, the sooner you buy, the sooner you begin to build equity. Buyers need and seek homes in all economic stages, and buyers and sellers find the right opportunities because home ownership is both an achievable dream and an excellent investment.

Whether you are a first-time homebuyer or are planning to purchase a vacation home, if you find a house you like, it’s hard to quantify the value of the investment. As more employees work remotely or take hybrid opportunities, many couples and families spend more hours than ever in their houses. It’s important that you’re happy with your choice, no matter the interest rate on your mortgage.

Over time, even with temporarily high-interest rates, homeowners are still more likely to get their money out of their property investment. 

When you find your dream home and plan to stay there for more than five years, your first interest rate shouldn’t be what stops you from investing.

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