The front page of the Wall Street Journal today included an article on the Federal Reserve’s recent policy designed to stimulate economic growth. The first line of the story should be of great interest to anyone buying a home:
“The bond market’s month-long plunge has pushed long-term interest rates on mortgages and U.S. Treasuries to their highest levels in over a year.”
Buyer Beware! Rates on 30-year fixed-rate mortgages rose to a hair above 4% this week, compared to a low of 3.2%, 30 days ago. That’s a .8% increase in the interest rate a buyer will now get, when compared to a few short weeks ago. That may not sound like much of an increase, but it amounts to a mortgage payment that is about $44.00 higher for each and every month that a buyer financing their purchase, owns their home. For a buyer financing $100,000, and owns their home for 10 years, that’s an additional $5,280.00, or 5% more they are paying to own their home. Worse yet, it’s $5,000.00 extra the buyer is now giving to their friends financing the purchase, The Bank!
If the amount financed is $500,000.00, that same 5% ends up costing a buyer $26,000.00 over a ten year period of home ownership. And, that’s all money that is going to your friendly neighborhood bank or finance company!
Although there is nothing that can be done to go back in time to get the old 3.2% mortgage interest rate, buyers who act quickly can save on the next $5,000.00 increase in mortgage payments that will occur when the rates increase to 4.8%. That could take a while, or it could happen again in just a few short weeks. Anyone, that is contemplating financing a real estate purchase sometime in the next year, would be well-advised buy now!
There is also another reason, it makes sense for buyers to make their move quickly. For many years now, buyers have enjoyed a buyer’s market with an abundant selection of homes to choose from. When a buyer identified the ideal property, in most cases, they could present lowball offered that would be accepted by sellers anxious to move on. Those days may be gone forever. With inventory levels rapidly dwindling and sellers recognizing they are now in the driver’s seat, buyers may soon find themselves rationalizing their decision to purchase a home. As interest rates continue to rise, they will cause mortgage payments to increase, and more and more buyers will be moving up their plans to purchase a home. The increased competition in the coming months will lead to even greater challenges for buyers in the future.
There is a solution. Don’t wait for housing prices to increase. Don’t wait for interest rates to reach 5%, 6% or even 7%. And, don’t wait until the selection of homes for sale at a reasonable price, consists of leftovers that other buyers chose to reject. Don’t wait. Buy now! And, enjoy a trifecta of the benefits, strong appreciation, low interest rates and the best possible home that money can buy for you and your family!