Should you buy a home in an environment of rising interest rates? The short answer is yes. Let me explain why.
If we look at historical measures right now, interest rates are still very low. I’ve been in the real estate business for more than four decades, so I’ve seen pretty much everything. When I started in 1978, interest rates were 9%, and many people thought that was a big number compared to what they were 10 years before. Within two and three years, they went as high as 17.5%. Were people still buying homes? Of course they did. In fact, they bought a lot of homes in that particular year. I sold 75 homes, and it was my third year in real estate.
People will still buy homes even if interest rates increase. This is because people will still get married, have changes in family circumstances, and have to move around the country due to job transfers or retirement. Interest rates may be considerably higher than they were a year ago; however, if we look at interest rates in terms of a snapshot, they’re still relatively low. For example, if you buy a $400,000 home today that is 2% higher than a year ago, your annual interest would be roughly $8,000 more. That equates to about $730 a month in interest. That seems like a great deal of money, but it’s short-term borrowing, so it’s very likely that interest rates will go up and down. You can always refinance once interest rates drop to get a lower rate and a much lower payment.
“You can always refinance once interest rates drop to get a lower rate and payment. ”
However, if you stay out of the marketplace, you lose out on the equity you could have gained on the same $400,000 home as it appreciates in value through the years. When I started my career, interest rates were around 9.75% and eventually got nearly 18%. A $55,000 home in those days would be worth around $400,000 today. Don’t you wish you could have bought back then and owned 15 or 20 of those?
The bottom line is I always look at interest rates as a short-term phenomenon. They’re going to go up and down, and eventually you’ll find a balance
On a personal side note, I remember buying investment property back in the 1980s when interest rates had come down to 12%. The good news is that 12 years later, I refinanced it, pulled $150,000 out of that property and was able to buy three more. Those three properties were worth four times as much as the original home I purchased.Real estate is always a great long-term bet. Hedging your bets on interest rates is fine, but you can be in the market now and still be a winner. If you have plans or buying or selling, or have any real estate questions, don’t hesitate to call or email me. I’d love to help!
