We have all heard I'm waiting til rates fall in the current market. What is that truly costing you? What is that saving you? What opportunities are being lost or gained by waiting?
Today's first time home buyer rates in Iowa are at an impressive 6.875% - 8.125% pending qualifications. This is a much greater rate than what the country has seen over the past 5-6 years; however, this is hovering around the market average over the past 50 years.
Interest rates a critical aspect when it comes to buying power and what a person can afford monthly in a property. The purpose behind this blog is to determine if waiting is in your best interest.
The main factors that set the mortgage rates are: The Federal Reserve, Bond Market, Secured Overnight Finance Rate, Constant Maturity Treasury and the overall health of the economy and inflation.
The importance of interest rates are to drive the economy but also to slow down the economy if deemed by the government. For the past 4-6 years we experience record low rates. With that we also experienced a huge boom in the real estate market. The point of the rates were to push our economy to a greater state. Real estate makes up a little over 20% of our GDP ( Gross Domestic Product).
The ensuing years have then bolstered record highs of inflation. Inflation to the point of 200-300% in just a 3 year time frame. Since the 1983-2021 we have typically experienced a normalized inflation of 2.7% (18 years = 48.6%). From 2021 through 3rd qtr of 2023 we have seen 17%.
Due to all inflation and home prices rising so drastically it has shifted the ability for a lot of first time buyers to make a decision as affordable house is slowly becoming a thing of the past and rental rates are growing at a rapid rate as well. Since March of 2020 the national rental rate has increased by 22.4%!!! Making the typical 2 bedroom unit 1,372 per month across the nation. Typically once something goes up it never comes down.
With product availability still below product demand housing prices are still expected to see a 4-5% in 2024. What does this mean for you? Means the home that is currently 300,000 will be roughly 315,000 this time next year. That's a 15,000 increase for the exact same home in next years market.
Over the past week we have seen a drop in interest rates of roughly .5 percent. This increases a buyers ability to afford a higher priced home. 300,000 at 7.5% pmi payment is 2100/month. With the half percent reduction it drops to 1995/month. Now what happens if rates go back up? Well the current real estate market is similar to the stock market. It has been fluctuating on the daily almost for the past 2.5 years.
Lets be hypothetical and state rates drop another half a percent over the next year while you wait. Making rates 6.5% on the same house which is now at 315,000 you'd save a total of $4! Wow was it worth saving 4 dollars a month to pay even more for an appreciating asset as well as paying your landlord 100% interest to stay put? Also remember you can always refinance if rates drop enough to make it worth it. But at least you know the likely hood of your investment dropping in value will remain the same or increase.
The fact of the mater is buying real estate is always a great investment option for yourself. 63% of the population only experience wealth through real estate as the valuation continues to raise year over year.
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