Is homebuying still worth it with rates high? Here's why it may be.
It seems impossible to read the news without happening upon at least a story or two about rising interest rates. If you're in the market for a new home, that's not good news. Housing inventory is failing to keep pace with demand and rates are topping 7.5%, making the housing market more difficult to navigate.
On the other hand, it still may be a wise idea to buy a home.
The simple fact is that even in today's high-cost housing environment, real estate makes a strong investment. But that's not the only reason why now may be a good time to buy a new home.
Lock in your mortgage rates today to avoid paying potentially higher rates later.
Here's why it may be a good idea to buy a home now
"Even with everything we've seen over the last two years and rates continuing to climb, all things considered, it is still a great time to buy a home." says Darren Tooley, senior loan officer at Cornerstone Financial Services in Southfield, Michigan.
Why might that be? Here are five reasons to consider:
Real estate has a strong history as a solid investment
"Over the last 80 years, real estate has proven to be one of, if not, the best investments you can make," says Tooley. "In the 81 years we have been tracking home value data, there have been only seven years in which the average home value dropped year over year." That's a strong track record - one that suggests home prices will continue to rise.
Is it possible for home prices to fall ahead? It sure is, but if they do, it's only likely that they'll go down in the short term. Historically speaking, homes grow in price over the long term.
Buy a house now to avoid paying more money in the future.
Buy with less competition
"While it's true home prices have continued to soar, and when combined with the higher rate environment it has priced some buyers out of the market, it's a great opportunity to buy with less competition," explains Tooley.
Though, that doesn't mean you won't have any competition.
"Buying in this environment is still competitive," he says, "as the majority of listings receive multiple offers." But chances are that competition will be more fierce than it is today "when rates do eventually move closer to 6% and eventually the 5% level," he explains. That's because lower rates "will only attract more buyers that you will have to compete with."
Real estate is generally a safe investment
"Buying real estate is and will continue to be a great and safe investment," Tooley explains. "Simple supply and demand economics tell us that until there are more homes for sale (supply) than there are interested buyers (demand), prices will continue to increase."
Don't expect that to happen soon, though. Tooley says it "won't be happening anytime in the near future, if at all." He went on to explain "that there's simply not enough new homes being built to offset the number of new potential buyers flooding the market."
Rates are likely to go up before they go down
The Federal Reserve has left its target fed funds rate unchanged after the last two consecutive meetings. That means rates are paused. But they won't stay the same forever. The United States Treasury recently reported third-quarter GDP growth at 4.9%. That figure suggests inflation is still a cause for concern.
That, combined with the fact that other measures of inflation are tracking above the Fed's 2% target suggests that more rate hikes could be on the horizon. So, by locking in your rate now, you'll avoid a potentially higher rate in the future.
You don't have to keep today's high rate for the long term
Sure, if you buy a home in today's market, you'll have to pay today's high interest rates. But that doesn't mean you'll have to pay those high rates forever. Interest rates are known for upward and downward cycles and you can always refinance a mortgage as long as you meet the borrowing requirements. So, when rates go down, you can refinance and save.
Now could be the time to buy; check your rate here.
The bottom line
The bottom line is that high rates and a lack of supply in the housing market have made it difficult to find affordable options. However, there are still smart options out there. Real estate has a reputation for being a reliable long-term investment and by buying a home now you'll generally be buying in a less competitive market. Moreover, you can refinance to cut your interest expense when rates cool down.
