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Interest Rates in Utah are around 7%. Should I buy a home now or wait?

By Benjamin Clark

Real Estate Agent with Homebuyer Representation, Inc. DRE# 5467433

July 17, 2023 03:58 PM

should i buy a home with todays interest rates

I'm not usually one to suggest that "now is the perfect time to buy" a home. In fact, the perfect time to buy a home is almost always "years, if not decades ago". That's because in spite of crashes and corrections, we are likely never going back to the $80,000 homes of the 1990s or the $3,000 homes of the 1940s. There is no doubt that real estate is a proven LONG-TERM investment.

Housing is not getting less expensive

Prices do occasionally go down, but not generally over the long term. Ask yourself how long will you need housing?

Here is a list of the median U.S. Home Price in:

1940: $3K
1950: $7K
1960: $12K
1970: $17K
1980: $47K
1990: $79K
2000: $120K
2010: $222K
2020: $340K

Figures are rounded to the nearest $1000.

Source: https://www2.census.gov/programs-surveys/decennial/tables/time-series/coh-values/values-unadj.txt

While every state varies, they essentially follow the same general pattern.

There is a housing shortage

According to CNN, the United States housing market is short 6.5 MILLION homes. (https://www.cnn.com/2023/03/08/homes/housing-shortage/index.html)

Even though new homes have been being constructed at an unprecedented pace in many states, more new households are being created than homes being built. This is especially true in Utah where household formation naturally is high, and in-migration is also high due to the thriving economy and plentiful outdoor and recreational opportunities available to residents.

There is more to see than what you see at first glance

The cost of housing seems very high to many buyers today. But that is true whether buying or renting.

The cost of borrowing money (getting a mortgage) also seems very high. But a large part of that is that many potential borrowers saw an unprecedented lengthy period of time where mortgage interest rates were below 5%.

According to Freddie Mac, in 1972, the average 30-year fixed rate mortgage percent was 7.38%. Since then, the rate has been as high as 16.64 (1981) and as low as 2.96 (2021). Since 1972, rates did not dip below 5% until 2010 when the average interest rate was 4.69%. (2009 was very close at 5.04%)

Benefits of buying at today's interest rates

While 7% is hard to come to terms with for many borrowers, there are some clear advantages to purchasing now vs. waiting, at least from a borrowing perspective.

First, if interest rates continue to rise, those who buy now will benefit from purchasing with the "low" rate of 7%. The higher cost of borrowing money is also having the effect of keeping home prices from running up at a fast pace like they did over the past 3-5 years.

And if interest rates fall, most buyers who buy now around 7% could benefit from refinancing their purchase at the lower interest rate. (7% is not an advertisement of an interest rate, just a number being used to illustrate the point.)

Home prices may skyrocket again if interest rates fall

Due to the shortage of homes vs. the number of households being formed that need housing, waiting for a lower interest rate to purchase a home is not only risky, but the competition for homes will likely be as fierce, if not more fierce than it was just a few years ago.

If rates drop significantly in a short period of time, the unprecedented backlog of buyers waiting for low interest rates will likely reenter the market all at once, causing home prices to increase sharply once again.

And the people who benefit the most from skyrocketing home prices? You guessed it. The ones who already own homes.

If you are on the fence about buying a home in today's real estate market, just reach out for a free consultation.

Exclusive Buyers Agents do not list homes and will not ask you to limit your level of representation. We are 100% on your side during the transaction, representing YOU, negotiating on YOUR behalf and protecting YOUR interests.

Smart Home Buyers