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Many of us in the real estate profession have been keeping a watchful eye on the Federal Reserve. Due to efforts to keep inflation at bay, the Fed recently raised mortgage interest rates, which are now officially above 7%. This is the highest 30-year fixed mortgage interest rate since April 2002, the highest rate in more than 20 years.
While a 7% interest rate may seem high compared to the historically low rates from previous years, I think it’s important to approach this figure with some perspective. Yes, these rates we’ve been experiencing in the past few months have been higher than what we’ve been used to, but there have been periods in the past where interest rates soared into the double digits (many fellow REALTORS® can remember 18% rates in the 1980s). Homeownership remained a cornerstone of personal financial growth even when rates were much higher.
Higher rates mean increased monthly payments compared to lower rates, but it doesn’t undo the long-term benefits of owning a home. Building equity and various tax benefits are still very much part of the equation. When looking back over markets that experience higher interest rates, one sees that this could lead to more stable property prices, which could potentially offset some of the interest costs.
Also, it’s important to consider your personal finances and long-term goals. If you are a potential homeowner who is financially stable and sees owning a home as a long-term commitment, a slightly higher interest rate over the long run might not have a big effect years from now. As I mentioned, rates fluctuate, and refinancing when rates become more favorable might be an option to pursue.
So, how are these rates currently affecting homebuyers looking to enter the housing market? Dr. Jessica Lautz, Deputy Chief Economist and Vice President of Research at the National Association of REALTORS®, explains. “The rate translates into a mortgage payment for a single-family home of $2,234 and $1,942 for a condo. The increased mortgage rate exacerbates housing affordability as home prices climb in this limited inventory environment. Something has to give for rates to come down, and that something is the next decision by the Fed.”
Yes, these current mortgage rates are higher than recent years, but funny enough one thing that has remained constant in recent memory is change. The housing inventory has fluctuated. Prices have changed. It’s important to realize that markets and rates shift over time, which is why it’s so important to consult a REALTOR® to help in your particular homebuying and selling needs. Understanding the current market in a particular area is exactly the type of expertise a REALTOR can provide. REALTORS help guide their clients through the sometimes dizzying process of buying or selling property. That’s Who We R®.