Mortgages: Will rising rates spook homebuyers?
Buying a first home is “an agonizing problem for a lot of young people,” said Greta Kaul in MinnPost.com. A disheartening combination of rising home prices, low inventory, and escalating building costs have been conspiring to render the dream of getting on the property ladder increasingly unattainable. Adding to prospective buyers’ woes, the Federal Reserve is expected to raise interest rates several times over the coming months. As borrowing costs escalate, house hunting will become “even tougher,” said Kathryn Vasel in CNN.com. Home prices nationwide have soared by an average 48 percent since 2011, while incomes increased by just 15 percent in the same period, creating a real “affordability challenge.” And now, just as the home-buying spring and summer seasons begin, interest rates are ticking higher: A 30-year fixed-rate mortgage hit an average 4.43 percent last week, the highest level since April 2014.
Let’s have some perspective around those numbers, said Jeff Andrews in Curbed.com. Assuming that rates rise by another 0.85 percent in the next year and home prices climb 2.6 percent in real terms, a typical monthly mortgage payment will go up from $804 to $910. While that 13 percent increase is not insignificant, it still means borrowing rates remain at historic lows. Twelve years ago, the average monthly payment, adjusted for inflation, was $1,263. And in the early 1980s, the 30-year fixed-interest rate was roughly 18 percent. Prospective homebuyers may be worried by the Fed’s increases, but rates are “unlikely to get better than they are now,” so it’s wise to keep house hunting. There may be some deals to be had in the coming months, too, said Kathy Orton in The Washington Post. The “upward march” of interest rates, combined with the loss of tax breaks for some homeowners, could begin to have a “damping effect” on the market. Sales of new homes stalled in January, which could put downward pressure on prices this summer.
“While buying and owning a home can be fun and rewarding, it’s not all HGTV makes it out to be,” said Hillary Hoffower in BusinessInsider.com. For the most part, “it involves a lot more mental and monetary effort than most buyers originally anticipate.” So when you are ready to take the plunge into homeownership, be patient and flexible through the search process. Make a short list of “must-haves” for your home, but be willing to compromise on the rest, said Bill Ness in Forbes.com. You may have to sacrifice those granite countertops to shorten your commute to work. Study your prospective neighborhood and see if you can imagine yourself living there. “Don’t buy beyond your means.” And be meticulous with your paperwork—errors can be costly. Buying a first home is daunting, but go in with a strong plan and “don’t let fear stop you.”