First-time homebuyers – fear not! Many first-time buyers may be feeling jittery as interest rates pass 4% or 5%, but we assure you there is no need to worry or stop yourself from pursuing your dream home. For those of us who make it our business to watch interest rate trends, now is STILL a great time to buy. From historically low rates to financing options and more, let us show you why now is a great time to buy your first home.
But first, why are we seeing an increase now? While there are a number of reasons that can and do contribute to changes in interest rates, there are two we will look at now. First is inflation. The federal government will sometimes use an increase in interest rates to contain an increase in inflation and help stabilize the country’s finances. Another important consideration is that we are coming out of a pandemic that kept interest rates low even after they hit their lowest point in 50 years in 2019. While technically rates can always get lower, it was unlikely after the last dip. There is good news though!
Historically, interest rates are still low. For first-time buyers, a 5% interest rate may seem intimidating. This is understandable given the staggeringly low 30-year rates of the last few years. However, long-term mortgage trends tell a very interesting story. Freddie Mac has been monitoring mortgage rates since 1971, and the average rate over that time period has actually been closer to 8%. Even 15 years ago, rates were higher than they are today, making these rates perfectly reasonable, although they may be higher than they were at the peak of the pandemic.
Finance options are available. If you’re still a bit nervous about making your first-time purchase, there is even more good news. There are various finance programs available that offer lower rates than the fixed rate. One example is buyers can go with an adjustable mortgage rate, or ARM, instead of a traditional fixed rate. There are various ARM programs some of which are fixed for five to seven years, and then adjusted to the market after that five or seven year term. Most people are unaware a “fixed” rate on an adjustable rate can last five-seven years and find this to be an attractive option. On top of that, historically, within two years of a recession or rate hike, there is an option to refinance and lower payments.
Rent rates, however, are spiking. Unlike interest rates for homebuyers, rental rates are continuing to climb, and outpace inflation. Even after adjusting for inflation, the median rent in North Carolina increased 10.32% from 2000 to 2020. This makes buying a home a smarter idea still for folks who are hoping to get the most bang for their buck. Speaking of…
Homeownership is a great way to build wealth. Buying a home can help owners save on taxes, each mortgage payment adds equity and long-term ownership leads to appreciation that outlasts inflation. The rise in interest rates could also be useful for determined buyers, as it will decrease demand as it scares some off, leaving better offerings for those who stick around.
In the meantime, the housing market is still strong. We’ve written previously about how while many predicted the pandemic would cause a major downturn in the real estate market, it actually did just the opposite. Now that the market is starting to calm down a bit, this market is fantastic for buyers. With interest rates still considerably low, pricing is holding strong, so these rates are allowing many buyers access to homes they might not have five years ago. Prices will likely rise though, so buying soon is a great way to save money.
Many people think buying a home can be scary, but with the right tools, it doesn’t have to be! At Hopper Communities, we are happy to discuss your options and the best way to get you the home of your dreams. Contact us today!