Written by:
Jayson Hardie – Managing Partner – (636) 256-5712
When we say out loud to a group of people, “You want higher mortgage rates if you’re looking for a home.”, we usually get the head tilt and an – Are you sure about that? – look. If you want to buy a home sooner rather than later and are being driven nuts by the current market, we have some good news: Now might be the best time to buy! Here are some numbers for you to consider.
1.9% The percentage of home sales dropped in April over March.
14% The year-over-year increase in housing inventory.
6.39% The average mortgage rate in April 2023.
7.02% The average mortgage rate in April of 2024.
These numbers might seem daunting because, yes, mortgage rates have gone up year over year, but so has inventory. The numbers are evidence that higher rates are keeping people from shopping. In some cases, we’ve seen a buyer be the only person offering on a home.
While we are in a brief period of opportunity with increasing inventory due to the rise in rates, this will likely be temporary, especially if rates come down, even if just a bit. We will break down a few of the reasons why this matters and why you might want to consider making your move now.
Behind the Numbers
We have talked before about the basics of supply and demand and how buying when rates are high could benefit you, but we are really seeing the numbers show evidence of that now. According to the National Association of Realtors, sales of previously owned homes in April 2024 dropped by 1.9% from March 2024.
Furthermore, inventory has increased even more. Housing inventory is up 9% over March 2024 and over 16% compared to April 2023.
With fewer buyers competing for properties, this means you have a better chance of negotiating favorable terms, avoiding bidding wars, and buying your home at a reasonable price.
Why This is a Temporary Window of Opportunity
Due to the demographics of the United States, we are experiencing a housing shortage on a specific basis. Boomers, the largest demographic segment, also own 25 million of the approximate 85 million homes. New construction accounts for approximately 1.5 million new homes, which is not enough to satisfy demand.
The only way enough inventory comes online is from the movement of the largest home-owning demographic in the U.S. (Boomers), either by choice or circumstances, and that is not likely to happen soon.
This temporary slowing of the housing market is due to increasing mortgage rates inside of a macrocycle of rising home prices.
Why You Should Try to Buy Now if You Can
If you’re saying, “I’m going to wait for rates to come down,” then it’s a pretty good bet that others are also thinking that. This type of pent-up demand will rear its head as rates drop even slightly. This will create multiple offers on listings and people paying $20,000 or $50,000 over the list price.
By buying now, you can elect to refinance down the road. While you can always lower your mortgage rate, you can’t get back the dollars you overpay for a home, and overpaying can truly cost you in the long run.
Additional Things to Consider When Buying in a Higher-Rate Market
Tax Benefits
Mortgage interest is often tax-deductible. When rates are higher, the initial portion of your mortgage payment going towards interest is larger, potentially leading to greater tax deductions. Consult with a tax advisor to understand how this can benefit your specific financial situation.
Locking in Today’s Prices
While interest rates can fluctuate, property values tend to appreciate over time. By purchasing a home now, you lock in the current price. Waiting for interest rates to drop might mean paying a higher price for the same property, negating the benefit of a lower interest rate.
Improve Your Credit Score
A higher credit score can help you secure a lower interest rate. There are differences between a good and a great credit score. We break down some things you can do to improve your credit score, but generally, you should focus on paying down debts and avoiding new credit inquiries before applying for a mortgage.
Make a Larger Down Payment
Reducing the amount you need to borrow can lower your monthly payments and the total interest paid over the life of the loan. If you recently got married or graduated from college, you can use those monetary gifts toward your downpayment.
Work with a Knowledgeable Lender & Realtor
A good realtor can help you navigate the market, find properties that meet your needs, and connect you with a lender they trust. Working together, they can help you negotiate favorable terms on your purchase. A good lender will walk you through the best loan options and can even help you secure a rate 1% – 2% lower than the market. That same lender can then help keep an eye on the market and help you refinance when the time is right.
Conclusion
Mortgage rates have gone up, creating a small window to access more inventory inside a macrocycle of rising home prices and low inventory. While high interest rates might initially seem like a deterrent, they can present unique opportunities for savvy homebuyers. By understanding the benefits and strategically approaching the market, you can make a sound investment that pays off in the long run.
Homeownership is not just about the interest rate; it’s about finding the right time, place, and terms that align with your financial goals and lifestyle needs. For anyone wanting to buy a home but has been discouraged, this may be the best opportunity to buy that you may see for quite a while.
