Should You Really Be Buying Right Now With Higher Interest Rates

Let’s talk about the elephant in the room…

The decision to buy a house when interest rates are high sounds a little scary, I get it.  Buying right now also depends on several factors, including your financial situation, long-term goals, and market conditions. Here are some things to consider to help you make an informed decision:

1. Finances: Assess your financial stability and ability to afford a higher interest rate. High-interest rates mean higher monthly mortgage payments, which can strain your budget. Make sure you have a secure job, a good credit score, and a reasonable debt-to-income ratio to qualify for a loan.
2. Long-Term vs. Short-Term: Consider your long-term plans. If you plan to stay in the house for a long time (e.g., 5+ years), high interest rates may be less of a concern. You’ll have time to build equity and potentially refinance when rates decrease. You’ll also build equity almost instantly once you close on your home.  U.S. Homeowners with mortgages have seen their equity increase with a gain of 7.3% year over year since the fourth quarter of 2021.
3. Market Conditions: We know in the Phoenix market, home prices are not predicted to decline due to the shortage of inventory that we have.  Builders can’t keep up with the migration to the valley and homeowners aren’t inclined to leave their 2-3% interest rates that they locked in over the 2020-2021. Lower-interest rates can drive up home prices, potentially offsetting the benefits of lower rates and creating a very competitive space for buyers when they are ready to start the buying process.
4. Future Rate Predictions: Economists are getting a sense of where interest rates are heading. If rates come down towards the end of the year, which data is supporting, you’ll want to start the process with your lender and realtor in September to make sure you’re ready to hit the ground running. The buyer pool is going to be extremely competitive, lower rates means more competition!
5. Budget Flexibility: Ensure you have some financial cushion to absorb closing costs or unexpected expenses. High-interest rates can make your mortgage more sensitive to rate changes, so having a financial buffer is crucial.
6. Down Payment: A larger down payment can help reduce the impact of high-interest rates by decreasing the loan amount and, subsequently, the monthly payments.
7. Locking in a Rate: If you decide to buy when rates are high but expect them to decrease in the future, consider locking in your interest rate with your lender. This way, you secure the current rate for a specified period, protecting yourself from rate increases. Most lenders offer rate locks and if the rate decreases after you’ve locked, you’re looking at the lower rate of the two at closing.
8. Negotiations: Your trusted realtor (that’s me!) is experienced and skilled in negotiating the best deal for you.  Rather than offering $12,000 lower than list price, maybe you look at asking for $12,000 in concessions to buy down your rate.  This could potentially lower your monthly payment by hundreds of dollars.

Truthfully, there is no one-size-fits-all answer to whether you should buy a house when interest rates are high. It’s essential to carefully evaluate your individual circumstances, market conditions, and long-term goals before making a decision. I’m here to talk through that process with you.  I have many trusted lenders that I can put you in contact with and each lender typically offers different programs that fit different needs.  It’s a wild ride in the Phoenix real estate market these days, however, that doesn’t mean that it’s not possible with the right tools and team in your corner. Call me with questions! JLR