I’ve heard that mortgage rates are at or have been at historic lows for years now. I’m just now approaching the phase where I could buy a home. I definitely see myself as a homeowner someday, but also don’t feel any pressure to buy right away. Especially since I like my current rental agreement and home values seem to be at record highs. So one part of me thinks I should just wait and keep building my savings/down payment (slowly but steadily). But then I keep thinking about the mortgage rates and everybody rushing to lock-in these really low rates, and it makes me wonder if I should be more worried about not buying soon enough. Any information or perspective you can offer would be great.
Thanks,
Laurence
Dear Laurence,
While mortgage rates are exceptionally low, the rates have been quite low during the last 8 years. In fact, average mortgage rates for a 30-year mortgage have been between approximately 3.66% and 4.55% during this time period. Recently, average 30 year mortgage rates have dropped to around 3.29%, which is only slightly outside of the range that they have been in during the last 8 years or so. However, current mortgage rates have been exceptionally low compared to where they’ve been since 1971.
The highest 30-year mortgage rates occurred in 1981, and they reached more than 16%. While the rates have been up and down, they dropped during the rest of the 1980s, 1990s, and 2000s. However, rates were relatively stable for much of the 2010s. While 15-year mortgage rates tend to be slightly lower, they have largely paralleled the rates on 30 year mortgages in terms of the rate.
It’s important not to pay too much attention to short-term trends when it comes to mortgage rates. If mortgage rates are dropping or staying the same, there will be periods of time where they will briefly appear to rise.
While your interest rate is an important factor when it comes to how much you’ll pay for a home, the price that you pay for the house itself is equally important. Most investors believe in the strategy of “buy low, sell high” when it comes to their investments, and real estate is included in this. Buying now would more than likely be doing the opposite, which could make your home less profitable as an investment.
Waiting to buy a home could allow you to build a savings as you said. This could allow you to make a larger down payment when you do buy a home, which could reduce the size of the mortgage that you take out. This could allow you to pay significantly less in interest over the course of time.
You don’t have to be in a hurry to buy your first home. Overall, it is still somewhat of a seller’s market, but the low interest rates can be good for buyers as well of course. The market is likely to shift from a seller’s market to a buyer’s market sometime later on this year or in 2021. As this begins to happen, you may still be able to take advantage of low interest rates for a time, and home prices will be low as well.