There is very limited inventory. We always think that six-month inventory is normal for existing homes. We’re in that mid-four-month inventory range. We know that rents are going to continue to rise. You have the option of either renting or owning. Rents have actually been going up while interest rates have stayed the same or even going lower. Current 30-year fixed mortgage rates are below 4 percent. I can remember when I was purchasing my first house—I had it built, and I was a professor at Texas A&M in the real estate center—and I was thrilled in November of 1989 to close and get 9-3/4 percent, 30-year fixed rate money, because that’s the lowest it had been in over a decade. We’re at the stage now where it’s probably the lowest it’ll ever be for the rest of my life. It’s just below 4 percent, according to Freddie Mac.
The Fed has raised their target rate once and the Federal Open Market Committee is meeting this week. Will they raise rates or not? We don’t know. We truly do believe that as the year progresses, mortgage rates will increase regardless of what the Fed does. So if you want to lock in perhaps your most affordable monthly payments for the next 10, 15, or 30 years, depending on the duration of the loan you pick, then it’s a great time to purchase. Some of the reports last year were that rents went up an average of 4.8 percent, so the quicker you buy, the better off you’re going to be. The forecast is that rents will continue to rise this year at varying levels.
Of course, every market is different. There’s no such thing as a national real estate market or a national real estate economy. You need to look at your local market to see what your rents and home purchases are doing. Many of the studies that have come out in recent months have noted that in all but a handful of cities, if you’re going to be there for three to five or more years, you’re probably better off purchasing than renting.
The forecast is that if 30-year, fixed-rate, conventional loans are 4 percent, I’m expecting that they’ll be between 5.2 and 5.6 percent a year from today. I’m not worried about rising rates hurting home sales, and the reason is that consumers have a significant amount of savings today from energy reduction. But I AM worried about that when rates go up and energy costs rise, it will perhaps put potential home purchasers out of play in the mortgage market.