Now is the time to buy a home as interest rates rise?
Will 2022 be the year to buy a home?
If you’re hoping to buy a home in 2022, you’re probably watching the market closely.
Interest rates are on the rise. And house prices have climbed at a record pace in 2021.
Does that mean it’s a bad time to buy a home?
Not according to Jon Meyer, loan expert from The Mortgage Reports and licensed MLO.
âWhile 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,â says Meyer. Here’s why.
Find your lowest mortgage rate before it goes up further (January 4, 2022)
In this article (Skip to …)
Is it a good time to buy? Key points to remember
As always, buying a home is subjective. It’s more about your personal finances than the market.
Here are some key housing trends in 2022 to keep in mind:
- With house prices still on the rise, it makes sense to buy as early as possible if you can afford it.
- Rising home prices are expected to slow in 2022, but not reverse. So it’s not worth waiting for house prices to drop
- Mortgage rates are going up. But don’t let that put you off. Even if they reach 4%, it is still less than half of the historical average
If you find a home you love and are financially ready, then 2022 is a great time to buy.
Check your eligibility to buy a home. Start here (January 4, 2022)
Higher mortgage rates likely on the way
After watching interest rates drop to historic lows in 2020 and 2021, it’s tempting to play the game of waiting and see if they can come down any further.
However, the Freddie Mac Monthly Average for 30-year fixed rates is up in the last quarter.
âMy mentor would always tell me, ‘The person who says they know where the rates will be in the future knows less than the person who doesn’t know anything,â Meyer said.
âHe didn’t mean that we can’t assess the market or get a decent idea of ââthe rate trend. His underlying message was that you can’t chase rates.
Do Rising Mortgage Rates Mean Now’s a Bad Time to Buy a Home?
The Federal Reserve announced on December 15 that U.S. consumers should expect a series of rate hikes throughout the year.
Based on what we know now, it will likely be better to lock in a mortgage rate sooner than later in 2022. Plus, the longer you own a home, the more equity you accumulate.
“Even if rates were to increase 1 percentage point from where they are today, they still would not be considered historically high interest rates.”
But that doesn’t mean potential buyers should be put off by the rate hike.
Historically speaking, mortgages today are still ultra-affordable. And they are expected to remain so throughout 2022.
âEven if rates go up 1 percentage point from where they are today, they still wouldn’t be considered historically high interest rates. When my dad bought his first house, he got a loan with an 11.5% interest rate, âMeyer added.
Home prices will continue to rise
With low mortgage rates and a tight inventory fueling buyer demand, home appreciation has reached unprecedented highs in 2021.
The median selling price in the United States climbed 14.6% per year in the four-week period ending Dec. 26 and hit a new record high of $ 361,171, according to Redfin.
Even though 2022 promises to be another strong year for the housing market, the pace of home price growth is expected to decline from the record highs of 2021.
However, slowing price growth should not be misinterpreted as falling prices. All indicators point to an increase in home values ââin 2022, just at a slower pace.
âAt least buyers are benefiting from low mortgage rates. But by next year, inflation could spread to more consumer goods, âsaid Daryl Fairweather, chief economist at Redfin.
âEven though our forecast for the new year includes more listings and slower home price growth, buyers can feel so stuck with other spending that they have to cut their housing budgets. “
Is rental the solution?
Renting has its perks, like not having to pay property taxes or home insurance, especially if you’re not yet determined to live where you want to live for the long term.
But it’s similar to renting a car, according to Meyer. âYou pay monthly to own nothing at the end of the day. “
With the supply of listings available for sale being so low and purchase prices continuing to climb, rental prices are also increasing.
Today, the average renter faces even higher monthly fees and a higher appreciation rate than homeowners.
Redfin found that the average monthly rent rose to $ 1,985 in November, up 6.8% per month and 20.5% per year. In comparison, borrowers who put in 5% less had a median payment of $ 1,551, which was up 1.1% from October and 19.9% ââfrom the previous year.
|Rental market summary||November 2021||Month-to-month growth||Year-over-year growth|
|Average monthly rent||$ 1,985||6.8%||20.5%|
|Median monthly mortgage payment for homebuyers with a 5% down payment||$ 1,551||1.1%||19.9%|
With rapidly growing housing costs, inflation hit 6.8% in November and hit its highest level since 1982.
Many consumers were excluded from the sales market and then turned to the rental market. This increased demand and the expected high inflation rate will drive up rental prices and could make the situation more difficult financially than buying.
âInflation came first for the home market for sale, and now it’s coming for the rental market,â Fairweather said.
âAnyone who bought a home before this year can congratulate themselves because their mortgage payments are fixed, which means their biggest recurring expense is immune to inflation. “
Betting on interest rates and house prices
Some buyers might be tempted to wait for lower interest rates – or slower growth in home prices – before entering the market.
But if you, as a home buyer, wait for mortgage rates to fall within a certain range, you run the risk of:
- Losing the house you wanted
- Be priced out of ads you could have afforded before
- Expect lower rates that might never materialize
Meyer provides an in-depth hypothesis on how keeping mortgage rates or house prices lower can potentially hurt you:
âWhen you wait for the right interest rate, you are gambling,â he says.
Example of buying a house
âSuppose you are a qualified borrower up to a total monthly payment of $ 2,500. If today’s interest rate is 3.25%, this is what your home buying budget might look like:
- House price: $ 500,000
- Down payment: 20% ($ 100,000)
- Monthly principal and interest payment: $ 1,740
- Total monthly mortgage payment: $ 2,360
âYou’re qualified and can afford the house,â Meyer says, âbut you decide you’re going to wait until the rates go back below 3%. “
âNow six months have passed and the rates are still at 3.25% and the original home you wanted is no longer available. An identical property in the same neighborhood is listed, but the market has kept pace and this home is listed at $ 530,000.
Thanks to the higher price of this house, your monthly payments have increased and you are almost reaching the maximum of your budget. The amount of your deposit has also increased.
- Price of the house: $ 530,000
- Down payment: 20% ($ 106,000)
- Monthly principal and interest payment: $ 1,845
- Total monthly mortgage payment: $ 2,497
And that’s assuming you haven’t incurred any additional debt in the meantime, Meyer adds. âIf you have an extra $ 1,000 on your credit card and can’t pay it off, you’re no longer eligible for the home. “
Risks of waiting to buy
âWhen it comes to the price of the house, I have personally seen clients pulling out of the market they were targeting just hoping that house prices would go down a bit and instead continue to drop. to augment.”
âThen there’s the other scenario that can happen,â he says. “Rates never go down and keep going up.”
If mortgage rates go up enough, it could cost you your qualifying monthly payment and the home you want to buy.
For these reasons, Meyer cautions against pursuing lower rates and / or lower house prices.
âIt not only hurts your wallet,â he says, âbut more importantly, your ability to qualify for the home you want.
This underscores Meyer’s overarching point that it’s always a good time to buy if you’re ready and can afford it.
Find your lowest mortgage rate before it goes up further (January 4, 2022)
What are the mortgage rates today?
Industry experts predict the average 30-year fixed-rate mortgage will be around 4% by the end of 2022.
And while predictions don’t always come true, we know that rates today are hovering near their all-time lows. In case they fall in 2022, borrowers can still refinance with their lender for a lower rate and monthly payment.
Check your eligibility and the latest interest rates to see if getting a mortgage and buying a home is right for you.
Show me today’s rates (January 4, 2022)
The information on The Mortgage Reports website is provided for informational purposes only and does not constitute an advertisement for any products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, its parent company or its affiliates.