Dear Olivia,
I’ve wanted to buy a home for a couple of years, but now I’m wondering if it’s even worth it since interest rates are on the rise. Should I go for it or wait for the rates to drop?
Sincerely,
Sick of Renting
This is a very popular question as of late, so you aren’t alone in wondering if it’s still a good time to buy a house.
The short answer is yes – buying a home is still a great idea for many people. Of course, it’s a little more complex than that, so let’s dive in!
There’s No Reason to Fear!
Experts agree that the real estate market is slowing down amid rising interest rates. But, this is not an indication that there will be a market crash like there was back in 2008. Back then, high interest rates, adjustable rate mortgages, and high monthly mortgage payments contributed to a market collapse when people began listing their homes for sale en masse, which helped trigger the recession.
This time, though, real estate inventory is still very low, so even though there is less demand for homes, there’s still less inventory than buyers. What’s more, people that have purchased homes in recent years benefitted from historically low interest rates and soaring home values. In other words, things are slowing down, but the real estate market seems to be healthy.
You Can Lock in a Payment
So, there doesn’t seem to be an elevated risk in purchasing a home at this point. On top of that, buying a home means you can lock in a monthly payment – something that can’t be said for rent.
With inflation so high, landlords are bound to raise rent if they haven’t already. If you’re paying $1,000 per month for rent today, it might be $1,150 next month and $1,300 a year from now. But if you buy a home, your payment is fixed year over year, so the change in your monthly payment is negligible.
This means that buying a home allows you to stabilize your monthly expenses. Instead of having to account for a potential increase in rent, you can set aside any extra money you have in savings or put it towards improvements to your home.
Buying a Home Means Building Equity
When you rent, you’re putting money into someone else’s pocket. That $1,000 in rent we discussed a moment ago means that you’re spending $12,000 per year on something that you don’t own and can’t improve.
But when you own your own home, the money you pay each month helps your bottom line! You pay down the principal while your property value increases. The result of this is equity in the property.
Building equity takes time, but even after a year or two, you might see several thousand dollars in equity in your home. You can continue to build that equity or tap into it to make improvements to the property (or pay off other debt, for example).
While your buying power might not be as good as it was a year ago, it’s still a good idea to buy a home. It’s an investment now and for your future! Don’t let rising interest rates scare you off. They’re still lower than in the not-too-distant past (6.41 percent in 2006!), so if you dream of buying a home, talk with a Realtor to see the possibilities that await you!
~Olivia