Where I sell real estate -- primarily in Central New Jersey -- we are now seeing rising mortgage interest rates across the board and that does make buyers nervous (if not absolutely frightened) of moving forward with their home buying plans. In fact, in Mercer County New Jersey, mortgage interest rates have been steadily increasing in recent months after years of lower rates that we all had begun to take for granted.
But is this really a scary time for buyers to buy? I just don't think so. And here's why.
1. Mortgage interest rates are still pretty great! Yup, you heard me correctly. Interest rates are still great. Let us put things in perspective for a moment. According to Freddie Mac published statistics, in 1988, for example, interest rates for a 30-year conventional fixed rate mortgage were well above 10%. In both 2012 and 2016, those same mortgage rates hit a low of less than 4%! And now we are in the high 4% and low 5% for mortgage rates for fixed rate conventional 30-year loans. But from an historical perspective, there is nothing frightening about this at all. The rise is to be expected and not dramatic, at least not now.
2. Lenders are offering lots of different mortgage products. There are so many different mortgage products now available on the market that buyers have loads of options to fit their needs. First-time home buyer products, variable interest rates product, FHA loans, and interest-only products for those who want to keep their monthly expenses low until they can save more money to pay down principal. Buyers can obtain conventional mortgage loans with as little as 3% down (depending on your credit score), and in some cases, with nothing down (ask your lender about getting gifts from relatives.) Use a lender you can talk to, one who will answer your questions and work in your best interests.
3. Buyers have lots of housing options, but it's all about expectations. Is it true that with every increase in interest rates, a buyer has less spending power? Yes, absolutely. But that does not mean a buyer should not buy! In many cases, buying is still a better option than renting or staying where you are -- and that should always be part of the analysis. What may need to change is the expectation of what is possible. Perhaps that large, single-family home you have been saving for is still unaffordable with these higher interest rates. But purchasing a lovely smaller townhome and owning that for the next few years may give you the time you need to enjoy being a homeowner and the benefits that entails, while also saving even more of a downpayment for that dream home!
4. Home prices seem to be flattening. In order to increase demand in a market where interest rates are rising and inventory is lower than usual, prices usually have to go down. And we are seeing this happen in Central Jersey, in certain price ranges. So with interest rates still so good, this is a great time for some buyers to make their move.
So don't be frightened, be fearless! And call your realtor!