Is homebuying worth it right now?
Following a welcome pause in June, the Federal Reserve raised interest rates again last week, moving the benchmark rate to a range between 5.25% and 5.50%. While higher rates may be good for savings vehicles like high-yield savings and certificates of deposit accounts, they're generally poor news for borrowers. High rates make everything from credit cards to personal loans more expensive. Arguably the greatest way this is felt is in the real estate market.
Higher interest rates — the highest they've been in 22 years — make current homebuying significantly more expensive than it would have been just a few years ago. And it has left current owners looking to refinance their existing mortgages with limited options. That said, each individual's personal circumstances and plans are different. While buying a home now may not be beneficial for many, there are some buyers who can still be served best by acting now.
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Is homebuying worth it right now?
With interest rates on mortgages currently close to 7%, many buyers are understandably refraining from purchasing a home. But for others, it may still make sense to act. Here are three types of buyers who may want to act now:
Buyers who have seen their existing home value increase
Higher interest rates have had mixed results on the real estate market. While values have dropped in some parts of the country, they've actually risen in other parts, despite the rates. If you're an existing owner in the latter part of the country, then you may want to buy a home now, as the equity you've accumulated is significant and could drop in the near future.
No one knows with certainty where the market is heading. So now may be the best time to put your house on the market and move to a bigger (or, in some cases, smaller) home. Plus, if you make a large enough profit on your existing home, you may be able to make a commensurately larger down payment on your new one, making higher rates less of a concern than they normally would be.
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Buyers who don't mind refinancing in the future
Just because interest rates are high now, it doesn't mean that they'll stay high in the future. In fact, most experts expect rates to stay as is for the short term before dropping later in 2023 and into 2024. While no one knows how far rates will eventually drop — and how long it will take to get there — it's still something to consider if you're contemplating buying a home now.
You won't need to be committed to today's current mortgage rates forever. Or even for the next few years. So, if you find a home you want now it could be worth buying even with the higher rates. You can always refinance — and save money on your monthly payments — in the future.
Buyers who have found their dream home
"Date the rate and marry the house," most experts advise. In other words, you don't have to be totally committed to the current interest rate if you've found the home you love. The house is a long-term commitment, possibly for life. But rates change and can be adjusted in the future.
So, even in today's environment, if you find the dream home that you love it makes sense to be proactive and go after it. Your ideal home doesn't come on the market every day, so don't be afraid to be aggressive now.
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The bottom line
Homebuying isn't for everyone right now — or even most people. But for select buyers, it still may make sense to act. For buyers sitting on significant sums of home equity, now could be a good time to buy a home. Similarly, those who are willing to refinance in the future (and to pay the closing costs to do so) may find now to be a good time to buy. Finally, buyers who have found their dream home should strongly consider purchasing it now, as the opportunity may not still be there once rates have come back down.
