On March 16, the Fed voted to increase the fed fund rate for the first time since December 2018, and recently announced that rates are expected to rise through 2022. Since then, many buyers have been rushing into the housing market to beat further increases.
We call this “panic buying”, and what troubles us most – it’s driven by misconceptions about interest rates and the market.
Many people believe that interest rates are fixed. The truth is, they are dynamic. They rise and fall daily depending on economic and political factors such as expected rates of inflation and unemployment. In May, rates skyrocketed, then dipped 13 basis points, increased again in June, and on June 23 we saw an 18-point drop among 30-year rates.
Instead of rushing to buy a home, we advise our clients to lock in an interest rate. Many lenders offer a 90-day lock and may offer extensions for a fee.
Another misconception about the market is that lower interest rates lead to overall savings. Historically, housing prices and interest rates have an inverse relationship: as interest rates decrease, growth in home prices increases, and as interest rates increase, growth in home prices decreases. Rushing into the market to beat rate increases may backfire. With time, the market adjusts.
Rather than making a major life decision in a panic, we encourage our clients to consider the big picture:
- Other than interest rates, is this the right time for you to move? Why or why not?
- How long are you planning to stay in the home you purchase?
- Are you in the right place financially to be buying a home?
We also want our clients to purchase the RIGHT home.
- What are your plans, expectations, and priorities?
- How does a home affect your commute and transportation costs?
- Are schools a factor?
- Will this home meet your needs in the longer term?
Even in a market where home values are increasing, sellers may lose money on transaction costs on homes sold 3 – 5 years in. Closing costs on both sides of a transaction are typically 3% and commissions on a sale are 5-6%. Panic buyers may end up paying more to get OUT of their home than they “saved” getting INTO it.
Regardless of what interest rates are doing — if now is a good time for you or anyone you know to buy or sell a home, our team is here to help.
Are you in the market to buy a home?
Our long-standing relationship with developers and contractors provides us with access to homes before they come to market.
Do you have a home to sell?
We will help you maximize sales price by providing a thorough price analysis, professional staging, and a targeted marketing campaign.
Are you weighing the options of buying before selling vs selling before buying?
We have access to financing options that can help you buy your next home before your current home is sold and eliminate much of the stress associated with these transactions.