First-time home buyers. Locke Into a Low Interest Rate Now Before They Increase Any more.
When Will Mortgage Rates Go Down?
If you are currently shopping for a home or have recently applied for a mortgage you are likely experiencing some anxiety over rising interest rates. Iterest rates have steadily risen over the first two quarters of 2022. According to some analysts there is no end in sight but don’t let that scare you off from purchasing a home Interest rates are still historically low and there is never a bad time to invest in a tangible asset like real estate.
What has caused interest rates to rise?
The rise and fall of the American economy is the number one reason why interest rates change. The fed has some control over interest rates by dictating the short-term interest banks pay to borrow money. When inflation increases, the fed reserve raises interest rates to restrict the flow of money. This is a formula to combat inflation. This also increases the cost of money at banks which in turn causes interest rates to rise.
The main driver of interest rate changes is the treasuries purchase of mortgage-backed securities. Mortgage-backed securities are the instrument used to pool mortgages from Fannie Mae and Freddie Mac. Since the mortgage meltdown of 2008, the Fed has been purchasing Bonds that artificially decreased interest rates. As a new policy in 2022, the Fed has stopped this purchasing plan and as a result, interest rates have increased.
In addition to the pain of higher interest rates, housing inventory is at an all-time low resulting in higher prices. The combination of higher rates and higher prices has scared off some buyers because of the drastic change.
Why You Shouldn't let Higher Interest Rates Stop You
The most simple answer is that it isn’t going to change anytime soon. If you plan to purchase a home for your family this may be the new normal. The only feasible way to drop home prices would be to increase inventory and while inflation has resulted in increased building material costs, we shouldn’t expect this anytime soon. Unfortunately, we are all going to need to come to terms with this new normal.
Granted, once the market stabilizes a bit we should see some larger home builders jumping into the market to stabilize home prices. This does not mean prices will decrease, however. Only if Inventory far exceeds demand would we see a drastic decrease in price in this market.
So why should you buy a home? Because prices are only going to go up. Yes, there may be valleys during the climb but over the long haul prices will continue to increase and housing is still the safest investment available to ordinary American families.
When Will Interest Rates Come Down?
The only way interests come down is if the Fed continues to artificially lower interest rates through its bond-buying programs. Unfortunately, these programs are one of the reasons for the inflation we are experiencing today so it isn’t likely going to ramp up the way it has in the past. We should see some micro moves through the end of 2022 but if rates do decrease it should be no more than .25%. Not a very large impact in the grand scheme. In addition, keep in mind many other home buyers have the same idea that they would wait until rates decrease to purchase. This will result in higher competition for each home and ultimately higher home prices.
As with any other time in the US housing market. The best time to purchase a home is now. It is the safest asset available. Once you lock into a mortgage payment, you know the payment will not change even as inflation results in higher costs everywhere else. In addition, historically speaking, periods of inflation are always followed by periods of income growth. In the future, I will update this article with charts and figures to prove my point.
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