Real Estate Marketing & Beyond
Buying a home is a major financial investment at the best of times. Any purchase of hundreds of thousands of dollars - or sometimes much more, in certain situations - almost always requires either a sizable down payment or a long-term mortgage. In many cases, it means both, as this makes for more affordable monthly loan repayment amounts.
However, trouble has been brewing on the horizon for a long time now, and the days of affordable mortgages seem to be at an end for now. Interest rates on all lending across the US have become increasingly expensive, and that means financing a home loan is now potentially much more costly than it has been in quite literally decades. Here’s what the new normal looks like and what it means for new home buyers looking to enter the real estate market.
Interest rate increases don’t happen out of nowhere. In this case, US government financial policy decisions are to blame for recent rate hikes. Specifically, the Federal Reserve has been raising interest rates in an effort to combat inflation, which has been growing at a rate that the Fed has been uncomfortable with. As a result, mortgage rates have also been rising, reaching a 20-year high of 7.08% as of August 17, 2023.
This is bad news for new home buyers, as it will make it more expensive to finance a home. The knock-on effect from such high rates - which are more than double what they were before the Fed began ratcheting up the base interest rate in the US - includes the following things that are likely to affect new home buyers:
Prospective new home buyers are, of course, front and center when it comes to how lending rates have hit historic highs. However, it’s not just buyers that are being impacted by this; anyone looking to sell a property in this current economic landscape is also going to have to cope with the changes that such high mortgage rates will bring. Specifically, sellers will find a harder time finding buyers who can afford their properties, at least at their initial asking price.
These sellers will eventually face the unenviable decision of whether they let their home sit on the market for extended periods of time, which will ultimately lead to them having to reduce the sale price of the home in order to find a buyer. Otherwise, sellers may decide to postpone their sale altogether, instead waiting for interest rates to decline once more so that they can get a better price for their properties. Either way, it’s sure to complicate matters for buyers as well as sellers going forward.
If you are currently thinking about buying a home in this market environment, it is important to factor in the rising interest rates. You may want to consider waiting until interest rates come down, just as many sellers may decide to do, or you may need to adjust your budget to accommodate the higher monthly payments. Either way, however, there are some things that you can do that will increase your chances of success during this time of historically high mortgage rates. They include:
Rising interest rates are a challenge for new home buyers, but it is not impossible to buy a home in this environment. By keeping the above information in mind, you can increase your chances of getting approved for a mortgage and finding a home that you can afford. Take steps not to overextend yourself and keep a close eye on the housing market to help you make your final decision.
