The so called golden handcuffs are continuing to cause a massive housing shortage. This is the phrase being used for the 82% of Americans that are not considering selling their house and moving due to the extremely low and truly unprecedented interest rates below 3% and 4%. According to Bankrate.com, rates today are at or above 7%.
I previously taught you the phrase date the rate, marry the house. However, it’s reasonable to assume if somebody’s payment is currently $2000/mo with a 2.875% interest rate, they do not want to buy a house that costs more money and has a 6.95% interest rate. Overall, the rate isn’t truly important but it’s impact on the prospective seller and buyer is most certainly important. Many of today’s sellers will be paying double their current mortgage payment if they finance their next purchase. This is probably why there are more cash deals taking place than ever.
Arguably, rates should never have been as low as they were. Although it’s nice to have a 30 year fixed rate around 3%, it is an unsustainable number and will likely not be seen again for decades.
Even if you feel a crash is coming, you must keep in mind the previous crash did not lower rates to these record lows. That crash was also the worst since the Great Depression and had tons of additional factors that do not exist in today’s marketplace. Most predict rates will actually go up a bit before they come down and may level off around 6% (give or take).
The massive shortage and lack of new construction continues to put a strangle hold on sales. As such, bidding wars for homes continue and home prices have continued to rise.
There was a slight dip in home prices from June 2022 through December 2022. That too all changed by the second week of January 2023 and has not stopped. One major analyst even predicted we have seen the bottom of the real estate market for years to come. As a Realtor® even I believe that’s a bit scary.
These times are truly unique. The best advice remains if you’re thinking of buying then do it now. If both prices and rates go up, you’ll pay more for that same home in 6-12 months. This is a warning I put out in 2021 and boy was it true. A great example is a current home for sale in Livonia. It sold in 2020 for $188,700. Since I don’t know the terms, I’ll act as though that entire amount was financed. The payment would be just under $800. It is now for sale and was under contract at a list price of $265,000. At 7% and again assuming it was fully financed, the payment would be $1763.
I don’t own a crystal ball and can’t truly predict the future. Barring a catastrophic event that would have global impacts (a true world war, major markets like China, India, and parts of Europe all collapsing simultaneously, etc.) there is no data pointing to a drop in prices. Buy now, refinance if rates drop, enjoy your home’s appreciation over time.