By Steve Fox, Principle Broker/Owner, Pinot Noir Properties
I certainly wasn’t in the real estate business in the 1980’s, but I’ve heard how mortgage rates during the early to mid-eighties were not just high, they were astronomical.
Back then, mortgage rates climbed as high as 19% in some locations. “Builder Buy Downs” on rates were the vogue to allow more buyers to qualify – but even then, most people were paying around 10% – 12% interest on their home loans.
So I can confidently say that today’s recent uptick in rates is not the end of the world as we know it.
I’ll try to explain.
Based on all available real estate buying and selling data, the average interest rate on 30-year fixed mortgages has been near historic lows for more than eight years. And even with the recent rise over the past few months, they’re still at historically low levels. Keep in mind that 30-year fixed rates are still hovering in the 4% – 5% range – lower than the 6% average rates we saw just 15 years ago.
Should you Buy?
Buying a home as mortgage interest rates are rising is nothing to fear. In fact, as stated above, from a historical standpoint, today’s mortgage rates are still comparatively low according to mortgage lender Freddie Mac.
While it’s always nice to get a better rate and have a smaller total monthly payment, if you can afford the home, it’s never a bad time to buy. Especially as homes are still flying off the market nearly three times faster than before the pandemic.
So with inventory remaining tight, waiting for rates to come down may mean missing out on your dream home. What’s more, what if rates keep rising for the rest of the year? You may end up paying a higher mortgage rate on your home if you wait for the “perfect” time.
And remember if interest rates come back down, you can re-finance your existing loan – even moving to a shorter-term loan if you want.
How About Selling?
Just as with homebuyers, many people considering selling often think that rising rates mean sitting on the sidelines.
As a real estate professional, I wouldn’t tell anyone thinking to sell to wait out raising rates. But rising rates do affect the potential return on a property. For example, if a person wants to sell their home for $500,000 that’s fine. But due to higher rates, some buyers who six months prior could afford that price, could be priced out.
That means to get $500,000 for their property, it may take longer and/or the seller may have to negotiate their price. Yet on the other hand, with the market as hot as it is, conventional wisdom may not mean much – I’m still seeing some homes selling in less than a week for 20% more than expected sales prices. So I guess my message is, if you’re ready to sell, put it on the market.
Rising Rates and Real Estate Investing
As mortgage rates rise, the effect on real estate investing can be positive. For example, the market for rental properties will increase because fewer people can qualify for mortgages. That said, rising rates can also reduce prices, so it’s sometimes better to buy investment properties during a rising interest rate environment.
I hope you found this little tutorial useful. The bottom line is: if you’re thinking of buying, selling or investing in real estate, don’t be afraid! If you’d like to discuss in greater detail, drop me an email at steve@pinotnoirproperties.com. Cheers!