Now that interest rates have increased, does it still make sense to buy a house?
This is a common question
Should I buy right now? Should I wait until the interest rates cool off? Is the housing market going to crash? These are just a few of the questions my clients are asking. I'll attempt to answer those questions in this blog post.
The pros to buying right now:
The main reason to buy right now is that the competition is dramatically reduced. I work with home buyers in Colorado Springs and Denver, both of which have been incredibly competitive markets for the past five years. In 2023, homebuyers have a better chance of being the only offer a seller has received. This is a great position to be in for buyers that are uncomfortable having to make a quick decision, paying significantly over asking or covering appraisal gap.
Buyers have more power now than they have in the immediate past. Previously, sellers were receiving multiple offers and had a disproportionate amount of power. This translated into sellers receiving offers well above asking, demanding financing contingencies and setting all the rules for the transaction. This is no longer the case; in fact, sellers nervous about the shifting market are offering 2:1 buy downs, accommodating inspection requests and are taking below asking offers.
Buyers don't have to have cash. For those of us that don't have a cool $600K sitting around, buying in Denver and the surrounding markets has been tough the past few years. Now that interest rates have increased and competition has cooled, cash offers are no longer as common. (And, yes, this is counterintuitive given that cash offers aren't impacted by interest rates, but nevertheless- there are fewer cash offers right now.)
Date the rate; marry the price. If and when rates change, you can refinance and move your property into a lower interest rate. You can never change the price of a house.
Housing prices are not falling. There is no reason to believe housing is getting cheaper in the immediate future.
The cons to buying right now:
The monthly cost. The increase in the interest rate means there is an increase in the monthly mortgage, and sometimes this amount is quite significant. Aside from the pain of getting less with the same amount of money, there is also the depressing reality that some people just won't be able to afford the payment now.
Will the interest rates go down? Can I time the market?
A lot of people have this question and inclination. While I cannot speak to your particulars nor can I predict what will happen next with the housing market or interest rates, I can confidently state that this logic and mind frame has hurt more people in the past five years than it has helped them. From my experience, timing the market has ultimately priced a lot of people out of the market and/or allowed people to delay a decision because of nerves.
My advice on this is:
You can't time the market;
Many people have done this before you and successfully;
Be clear on what the worst case scenario for you would be;
Find out if the worst case scenario is realistic- because often it is not.
This is not 2008. It seems unlikely that prices will decline any time soon.
If you have questions, please reach out.