We all continue to watch inflation and interest rates rise and wonder where it will end; however, what happens if we ‘flip the script?’ Consider for a moment that most first-time homebuyers were probably in high school when the interest rates rose to 6% and above – that was 2008. We are also in a much different economic situation – particularly in the D/FW market.
This week (April 28) the Fed has signaled that we can expect 6 rate hikes this year, the first 3 likely between now and summer and we are nearly assured of at least 50 to possibly 75 basis points.
This action by the Fed is an effort to pump the brakes on inflation which was recently reported in CNBC this week as 8.5%, with 30-fixed mortgage rates pressing close to 6%.
It’s natural for both buyers and sellers to take a step back when things are uncertain. We recently posted a blog December 28, 2021, titled‘Why Waiting to Buy or Sell Can Cost More Than You Think!’ In Economics 101 this defined as an “Opportunity Cost” or the missed benefit that would have been derived from an option not chosen, buying or selling versus waiting.
We all know that there is always both a potential tangible as well as intangible cost to waiting, but without a clarity on what to expect next for our market, it hasn’t felt real. Now however, with the forecast of 6 more interest rate increases three between now and midsummer, the cost of waiting things out comes into focus.
For buyers and sellers there is now a window of opportunity to confidently act before these next rate increases hit.
The opportunity starts with sellers, given their potential to benefit both from the ability to sell for top dollar, while taking advantage of current rates before they jump again. If you are thinking of selling, it’s likely that the decision is not about to ‘sell or not to sell’ but what can I buy and where – a good question and one that we can provide the answer to once we know what and where you’re interested in.
We also have several options that can allow you to Buy Before You Sellso you don’t have to be concerned about the timing of selling your house and being able to find and close on a home in this very fast-moving seller’s market!! This can allow you to lock in you’re the rates on your new home before they rise while your existing home is on the market.
Remember, for every 1% increase in interest rates, the buying power – your buying power for your new home – decreases by about 10%. Recently, the increase in mortgage rates has resulted in property values in our D/FW market to increase by nearly 13% over the past calendar year but further growth is not guaranteed.
What this means is very simple! Waiting may net you more when you sell but if you are planning on purchasing with the proceeds from your sale the greater impact to your bottom line comes from rising interest rates to you on your new mortgage.
For buyers expecting price growth to stall, the economists are virtually unanimous that our strong job market and continued population growth through relocation make the prospect of a bubble or anything more than a flattening less remote than most anywhere in the country currently.
As the old idiom says, ‘the only things in life that are certain are death and taxes,” but now we can add that, at least in this coming year, that the Fed’s plans to continue raising interest rates will continue to increase the cost of borrowing money.
The past two to three years have been a tough run for buyers in our market. If you missed out on the recent record-low mortgage rates, we virtually assure you that continuing to wait will only diminish your buying power further. If you can make a purchase without overextending, rates are still comparably low in a historical context.
The current market is unlike any we’ve seen before and we’re going to be keeping a very close eye developments to keep you informed.
If you have any questions about buying or selling, fill out the contact form and one of our Team Members will be in touch.