Buying a home is a complex process, one that includes both wants and needs. Buyers look for neighborhoods that suit them and homes with desirable features, though both of those considerations take a back seat to the buyer’s budget. Mortgage interest rates significantly affect the amount a buyer can afford to spend on a home.
This is an important topic of conversation right now because current mortgage rates have been increasing as the Federal Reserve has raised short-term interest rates in an effort to control inflation.
To understand how this affects buyers, let's consider two scenarios. Six months ago, a home listed at $400,000 house would have sold for $450,000 and cost $2,280 per month for a 30-year fixed mortgage at 4.5%. Today, that same home would likely close at $375,000, making the monthly payment for a 6.5% mortgage $2,370. So, although current mortgage rates are higher, housing prices have also come down as the buying frenzy has eased off, making the difference potentially not as great as it first appeared.
However, the change in interest rates is enough to keep some buyers sitting on the sidelines of the real estate market, waiting to see what happens with prices and rates before they commit to buying a home. Since interest rates have climbed fairly quickly, it can be tempting to hope that they will come down equally fast.
However, no one knows what will happen in the future. The Federal Reserve’s efforts to control inflation may work, but they may not work quickly. It is also possible that interest rates will continue to rise before they fall again.
Talking to a mortgage professional is always a good idea before you begin your home search. Buyers who are prequalified for a loan are more attractive to sellers, and mortgage professionals can also explain other options in your homebuying toolkit, such as rate buy-downs, seller concessions, and ARM products. Those, plus increasing your down payment on a home, can create a lower monthly payment now, and preserve the option to refinance in the future when interest rates decline. Talking to a mortgage professional gives you all the facts and options and prevents you from mistakenly assuming the time isn't right.
Another important consideration, when looking at housing market trends and deciding what to do, is the current cost of living. As home prices have increased, so have rental rates. The National Association of Realtors said that rents have recently risen at the fastest pace in nearly four decades. If you are currently renting your home, or considering selling a home and waiting to buy again, it’s worth considering that cost. A mortgage payment goes toward your home ownership; rent goes toward your landlord’s.
Every situation is unique, and you should carefully consider your wants, needs, and budget alongside both the national housing market trends and the local ones. Your PureWest Christie’s real estate agent has the latest information on the Montana real estate market trends and can give you an accurate picture of your local market.
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