If you’re asking yourself, “Is now the right time to buy a house,” I congratulate you for considering this. It’s a smart question to ask. While rates are low now — and they are expected to remain low for a while– they won’t stay this low forever. At some point, rates will rise. So if you’re considering a home purchase now, you have to wonder how prices will be impacted once rates rise.
At first, a rising interest rate market may actually drive prices up. That’s because people who are sitting on the fence will get motivated to lock in rates sooner rather than later. But some experts fear that once rates peak above 6%, demand will shrivel and so will prices. At that point, housing affordability is reduced. That pulls people out of the market and reduces demand.
With so many houses for sale, such a dearth of homes owned by banks and so many people owning more on their homes than they are worth, the likelihood of a spike in real estate prices in the near term is low.
Conclusion: Real estate prices are not going anywhere soon. If you live in the boom states like California, Nevada, Arizona or Florida, get ready for a flood of new foreclosures to hit the market over the next 12 months. Nationwide, more than 1 in 45 homeowners are at some part of the foreclosure process. Don’t count on appreciation. If you are sitting on an adjustable rate mortgage, it’s time to lock in a fixed loan now if you have the credit score to buy a house. The difference between a 30-year fixed and five-year adjustable is about 1%, so it’s just not worth the risk of higher interest rates if you are going to stay in the same home for a while. In fact, the only way to justify an adjustable rate mortgage now is if you are almost delusional. The numbers work out like this.
If your rate goes up (and stays at) 5.75% but it takes five years to do it, you break even with the adjustable versus the fixed rate loan, according to the Investor’s Business Daily. But if rates go up to 5.75% in sooner than five years and you live in the house for 10 years, you are far better off if you lock in a fixed rate mortgage now.
At the end of the day, you can decide if now is the right time to buy a house by considering your housing cost alternatives (buying vs. renting), availability of credit now versus sometime in the future and long-term lifestyle plans. But if you are considering making such an investment in order to get a fast return on appreciation, I’d think again if I were you.
Are you buying or selling your home now? Why?
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{ 3 comments… read them below or add one }
I am not doing anything with real estate right now, but it does seem like a great time to get out and buy. Supply is ample, prices are down, and rates are low.
I think if you can get a good deal on real estate now, you should take it. The interest rates will never be lower!
I know that many Canadians are buying retirement properties in places like Florida and Arizona right now. Compared to what the prices were in the past, the cost of housing is definitely favorable for Canadians who plan on becoming snowbirds.