Interest Rates Are Rising – Should I Buy Now?

Mortgage interest rates are rising as the Federal Reserve announced a 1/2 point interest rate increase on the rate it charges banks to borrow. A mortgage loan that cost 4.75% last week will cost you 5.25% today and rates will probably continue to go up given the inflation signals I see. The big question for potential home buyers is “Should I buy now?”

The increase in mortgage interest rates is a problem. Lets take an example of a home priced at $400,000 with a buyer paying 10% down payment. The monthly mortgage payment would be approximately $1,878 at 4.75% interest rate last week (See my Handy MORTAGE LOAN CALCULATOR HERE)

This week that same loan is at 5.25% (and rising) and the monthly payment would be $1,987. The 1/2 % increase in interest rates costs a buyer $100 a month in this scenario. BUT – that’s not the whole story.

The costs of building new homes have been increasing faster than the inflation rate. Indeed, the costs of labor and materials have gone up because of inflation. All those government handout dollars have overheated the economy. Too many dollars chasing too few goods has made the cost of pratically everything go up. Its true at the gas pump and it is true in housing. Existing homes have had one of the most dramatic price increases in history. I don’t think that is going to stop anytime soon.

But what if it does stop?. What if there is another recession – there will always be another recession, right? Will the housing market crash like it did in 2008?

I think a housing crash is highly unlikely. Home loans were structured differently in the period between 2010 and 2022 than they were prior to 2008 and the big real estate market bubble bust. Homebuyers had to make a cash down payment. And loan underwriting standards were beefed up so that the people who received home loans actually had to prove they could pay them off. Mortgage fraud was essentially wiped out and the whole home loan process was cleaned up to protect the consumer and the housing market.

Secondly, the job market is not going to be as seriously affected by a recession in 2022 as it was in 2008. We have so many job opening today that even workers losing jobs could fairly easily find a replacement job. It is not like 2008 when nobody could find a job. Entire industries disappeared in 2008 and that is highly unlikely in the 2022 economy.

SHOULD YOU BUY A HOME NOW? My answer is YES, BUY A HOME IF YOU NEED ONE. The market is fine for those who need a place to live and are tired of paying rent. Your purchase is reasonably well protected and there is not as much downside as 2008. If you are buying a home as an investment, or to flip it – THIS MAY NOT BE YOUR MARKET. We never know the future of the housing market, but it seems unlikely home values will increase in future years like they did in 2021.

HOME OWNERS AND HOME SELLERS – this is definitely your market. It is a great time to sell your home and make a move to a retirement community, a retirement destination, or change to being a renter. Are you thinking about a change of locale – move to Florida, California, North Carolina, or the Northeast – we can sell your Atlanta home for a great price. House values are off the chart high. We can sell your home quickly and for top dollar!