Why Rising Interest Rates Make Today A Great Time To Buy Your Dream Home

Mortgage rates have been rising lately, and you may be wondering whether to put your real estate plans on hold or charge ahead into the marketplace to find your custom dream home. The reality is that interest rates in a variety of markets, while they have certainly ticked up in recent months, are still close to historic lows. 

If you decide to wait for a lender to offer you a better deal than you’re able to find right now, you may be waiting for quite a long time. The Federal Reserve has signaled very clearly that they intend to keep raising rates in an effort to stem the tides of rising inflation. Whether this plan will work or not remains to be seen, but it’s fairly certain that they intend to stick to their word for the foreseeable future. 

As long as you understand what’s happening, you’ll be able to navigate the real estate market with ease during a period of rising rates and maybe even pick up the deal of a lifetime. 

How Interest Rates Affect Real Estate Prices

While mortgage rates determine the amount of interest that you’ll pay each year as a percentage of your loan amount, these rates interact with the home’s absolute price to determine the absolute amount that you’ll need to set aside for monthly payments. In other words, you’ll pay substantially more per month on a $800,000 mortgage at a 3% interest rate than you’ll pay for a $650,000 mortgage at 7% APY. 

Prices and Rates Expected to Climb

Today, there is less overall volatility in the real estate market than in 2020 and 2021. Then, prices were increasing at breakneck speed as demand shot up. Now, as demand stabilizes in many places, home prices are, too. But if you think they’ll start decreasing anytime soon, you may want to re-evaluate.

Zillow predicts home prices will rise 16.4% in the next year, and much of that has to do with the cost of products and supplies. Lumber continues to cost well above what it did pre-pandemic, and those costs continue to creep up. The same is true for just about every component of a home — from flooring to HVAC systems to paint. As with housing in general, the demand is just too high as manufacturers struggle to keep up, and prices reflect that.

Demand for new homes isn’t letting up anytime soon. The U.S. currently has underbuilt housing by at least 5.5 million homes. Even as the pace of building picks back up, it will take five or six more years before supply and demand levels out, continuing to buoy the price of homes. 

Getting a Mortgage May Become Tougher

In addition to higher prices and increasing rates, lending standards may increase and make attractive mortgage offers harder to come by. As many people found out the hard way in 2007 and 2008, when lenders increase standards, there is a very good chance that the mortgage offers you see today will not be available to you at the same terms in the future for quite some time. 

Our recommendation: Buy sooner rather than later. If you have anything that you’re concerned about, talk to our Preferred Lenders about finding the best financing options for you! Overall, there are many good reasons to seize the opportunity and purchase a new Infinity Custom Home today.