By Dave Parrish
I started out to write this column about adding and maintaining value, but while doing so I took a glance at the current interest rates. Wow, quite a bump in rates last week.
While the fact that rates will begin a real move up has been predicted by many for quite some time, the repeated forecasts have become to be treated like “the little boy who cried wolf.” Thus, most have been lulled into a feeling that big jumps in rates were off somewhere in the future and that there would be plenty of warning.
Last week’s movement in rates could be a hiccup, but I don’t think so. I think it’s the beginning of a move toward rate normalization, which begs the question: Did you miss it?
While it’s easy to become focused on the sales price of homes, for most this is only a portion of the deciding factor when buying a home. If paying cash, you don’t have to contend with what it costs to finance a home, but that is not the way folks normally buy their homes. Most finance their homes and therefore what they can afford is largely influenced by the cost to finance. Ninety days ago the rates for a 30-year mortgage were running around the 3.25 percent mark. Today they are over 4 percent and headed higher. That has a dramatic impact on monthly payments for many, or perhaps more importantly, how much home they can afford.
Don’t get me wrong, rates are still unbelievably low. When my father, a WWII veteran, bought his first home in 1953, his VA loan rate for a 30-year mortgage was 4.25 percent. Now is still a good time to buy, but 90 days ago was even better, and I believe that 90 days from now, we’ll be saying the same thing — still great rates but your payments will be higher, driven by increased interest rates and rising home prices.
It’s really a kind of good news, bad news story. As the economy improves, interest rates and prices rise. If you were waiting on the bottom, you missed it. But that doesn’t mean you can’t still find a great home at a great price, just that it will now take longer to find it and you will pay more than you would have if you had acted earlier. The good news is you’ll pay less now than you will later. Don’t miss it again.
May the market be with you.