Cause to Pause

By
Real Estate Broker/Owner with Morningside Homes, LLC 720-231-5200 DRE# ER300941
 



Rising mortgage rates are causing some would-be buyers to pause their decisions until they determine whether rates are going to come back down.  While it may be possible, the probability is that prices are going to continue to increase.

On December 23, 2021, the 30-year fixed-rate, according to Freddie Mac, was 3.05% and is at 6.29% as of September 22, 2022, a 3.24% increase. On a $360,000 mortgage, the principal and interest payment went from $1,528 to $2,226.  The $698 difference represents a 46% increase in the payment.

It seems understandable to pause and see if rates will come down again, especially since they went up so fast, but it probably isn't going to happen anytime soon based on the Fed's position on controlling inflation.

The fact that inventories are growing slightly, and market times are increasing doesn't negate that supply cannot keep up with demand and homes are continuing to appreciate, albeit, not as much as they did in 2021.

If a person waited a year to see if the rates come down but, in the meantime, the prices increased 10% and the rates stayed the same, the home in the example above, would have a $226 larger P&I payment.

As an alternative strategy, the buyer could purchase the home on a 5/1 adjustable-rate mortgage with a 4.64% rate for five-years.  Instead of $2,226 for the P&I payment for the fixed rate at 6.29%, the payment on the ARM would be $1,926, a $300 savings.

They would have purchased the home at today's prices, avoiding appreciated prices and would have five years to refinance at a lower fixed rate should they come down.  Assuming the rate adjusted upward the maximum amount at each period, it would take over seven years to exhaust the savings on the lower payments for the first five years.

It is unfortunate that some buyers missed a window of opportunity to purchase last fall when mortgage rates were near an all-time low.  That window has closed, and it may not open again.  People who can still afford to buy, even though rates are significantly higher, are taking a risk waiting for rates to come down.  Even if they are correct, the prices will be higher, offsetting any possible savings. 

If they are wrong, both prices and rates will be higher, and they may be priced out of the market.

In the 1980s, when mortgage rates topped 18%, the best real estate agents in the country presented alternative financing choices to buyers.  If your agent hasn't had conversations with you about alternatives to fixed rate financing, there could be options available that you need to consider.

Depending on your price range and individual situation, investigate local and state financial assistance programs, ARM Comparison2/1 Buydown, and Cost of Waiting to Buy and download our Buyers Guide.

 

Posted by

Buy or Sell with Patty Clark              Denver/Aurora Co. and surrounding areas 

Chris and Patty

    Helping Families Move with Care

  If you would like to be sent properties on a daily or weekly  basis just call or email me and let me know your wants and needs. A match will be made with a home you love and with monthly payments you can afford. I specialize in first time home buyers and sellers who are

          ready to downsize or move to a larger home as the family grows

     

                                                     Morningside Homes, LLC

patty@morningsidehomes.com

www.morningsidehomes.com
Cell: 720-231-5200                       CRS,GRI,WCR,SFR,CNE, MRE

 

Comments (2)

Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Patty and nice blog to share with us here in the Rain.  Make it a special day!

Sep 28, 2022 10:15 AM
Patty Clark
Morningside Homes, LLC 720-231-5200 - Denver, CO
Helping Families Move with Care

Thank you. I hope you are having a good year.

Sep 28, 2022 10:24 AM