Beginning in March of last year, the Federal Reserve began hiking interest rates. This tool to help the government combat inflation seemed to work almost immediately. In April of this year, median home prices were shown to have dropped year-over-year for the first time since before the Covid-19 pandemic of 2020, signaling hope to future buyers of a cooling market. But as available homes are still in short supply, high demand has created a recent uptick in median home prices. With this in mind, some experts are predicting yet another rise in interest rates. What does this mean for you as a potential buyer? According to industry professionals, you shouldn’t be dissuaded by buying a home with higher interest rates. In fact, you’ll find a number of benefits when securing real estate in the current climate.
Higher rates mean less competition for the home of your dreams
The short supply of homes in the beginning stages of the Covid-19 pandemic drove median home prices to historic highs. In order to help cool the market, the Federal Reserve began to incrementally raise the interest rates — an approach that worked in the short term. These higher rates resulted in a drop in home closings as well as a decrease in median home prices.
You’ll certainly pay a bit more over the course of the mortgage today than you would have 18 months ago. This reality does create a benefit for buyers
, however. The days of bidding wars and homes being sold for far more than their list prices have almost certainly come to an end in most markets. The advantage now is that you, as a buyer, will have a lot less competition when seeking out your new home. Less competition translates to lower prices and the avoidance of all-out bidding wars with other buyers using your checkbook.
The higher rates can drive down median home prices, saving you money on your investment
As mentioned earlier, higher interest rates have helped to drive down median home prices. Though a buyer will pay more over the duration of the mortgage, the drop in home prices can offset these two circumstances.
In the short term, the higher interest rates will save a buyer money on their investment. But if a buyer is to capitalize on the current lower home prices, they should consider a long-term strategy that includes either buying down basis points on the mortgage or undergoing the refinance process down the road when rates have dropped.
There can be less risk to you as a buyer
One advantage often overlooked when home buying during periods of higher interest rates is that there can be less risk assumed. During the last three years' bidding wars, a market that heavily favored sellers emerged. So much, in fact, that buyers were paying well above the list price, as well as signing waivers and agreeing to contingencies that they otherwise wouldn’t dream of doing.
Buying a home “as is” in spite of inspection results and purchasing properties sight unseen has become more common over the last three years. However, with less competition in today’s market, buyers can find themselves with more room to think about what they do and don’t want to concede on, thus reducing risk.
In the current market, rates could continue to climb
A buyer might be hesitant to purchase a home today, as rates are the highest they’ve been in years. And though they would be correct in their assessment, it’s essential to look at the current market and how experts have forecast the country’s housing situation over the next year.
At the end of July, the Federal Reserve increased rates yet again
and suggested that more hikes may occur before the end of the year. If this is the case, buyers should capitalize on the current interest rates to save money.
Hesitancy can potentially cost a buyer a great deal more money over the life of a loan. In case a buyer is still feeling hesitant, there will likely be long-term relief from these rates — especially if they play the long game. Buying a home with high interest rates today doesn’t necessarily mean that you’ll pay that rate forever.
You’ll always be able to refinance when rates drop
Buying a home with high interest rates isn’t the end of the world. Even if you’re not in a position to buy immediately and rates tick up a bit after you’re finally able to put in an offer, there’s a silver lining to consider.
Refinancing will be on the table for you when rates eventually drop. The market fluctuates, as do the interest rates, so there’s really no wrong time to buy a home if you look at things with a long-term mindset. You’ll pay more upfront now but will wind up saving money down the road. And if median home prices do continue to climb, getting one now means being rewarded with accelerated equity. Depending on how much your home grows in value and what interest rate you’re paying, this value may more than offset the higher rate that you’re paying today.
Make your next move with Yar Meshkaty
The decision to buy real estate should only come after careful consideration, planning, and discussion with a local real estate expert. Using the skills of a professional real estate agent will not only take the hassle and stress out of buying but can also save you a lot of money over time. A seasoned real estate pro like Yar Meshkaty
can use his master negotiating skills to get you the best possible price for the home that you’ve had your eye on. As a real estate broker with over three decades of experience, Yar is committed to helping you find and secure the property you love. Connect with Yar
today to begin your home search.