Since early May, interest rates on 30-year fixed rate mortgages
rose about half a percentage point, from 3.6% to 4.1%, leading some analysts to wonder: Is the great once-in-a-lifetime chance to buy a house going away?” The reality is that yes, rates are creeping up (emphasis on creeping) but prospective home buyers shouldn’t be falling all over themselves to buy now.
Just over a year ago, a 4% mortgage rate would have been considered a record low for a 30-year fixed rate mortgage.
While it’s true that mortgage rates will likely keep rising, the overwhelming consensus from realtors and mortgage experts we spoke with is that consumers shouldn’t be rushing their house hunt just yet.
“People who are thinking of buying a home or are actively searching feel a sense of urgency as they hear that mortgage rates and home prices are rising. Nobody wants to miss the boat,” Bankrate.com senior mortgage analyst Polyana de Costa, told Business Insider.
“That said, do I think people should or will buy homes just because rates are creeping up? No. Unlike with refinancers, homebuyers can’t simply say ‘I want to get a mortgage now before rates go up.’ It takes time to find the home they want, especially in markets where inventory is tight.”
What matters is what the homebuyer is looking for and how soon they want to buy.
“For people looking for hard-to-find homes –– like in a neighbourhood with little inventory or homes with unusual features –– they might do better waiting for more inventory even though it might cost more,” said Jed Kolko, chief economist for Trulia.
Rising rates means it’s cheaper to buy a home today than it will be next month, but that’s just how it goes in real estate. Homebuyers rarely time their house hunt with the ebb and flow of the market.
“I don’t think that interest rates rising a little bit will make someone speed up their search,” said Zillow real estate expert Brendon DeSimone. “Buying home is not like buying a widget, or a car or a stocks. It has to be the right place for the right person. I can’t imagine a homebuyer, looking for a 3-bed/2-bath home in school district X, all of the sudden buying a 2-bed/2-bed in school district Y just to get a better rate. It’s just not realistic.”
His advice? Home buyers should take their time and shop around for the best home and the best rate.
“Be sure to shop around for the absolute best rate when you have a place in contract,” he said. “Rates tend to fluctuate day to day so if you have the luxury of time, float for a couple of days. Work closely with a good local mortgage professional.”
Who is feeling the pressure? Those who haven’t refinanced
In all the hype surrounding rising rates, what is realistic is that existing homeowners should lock in lower interest rates as soon as possible. In the past month alone, applications for refinancing rose 5%, according to the Mortgage Banker’s Association.
For people paying more than 5% on a mortgage today, they should find out if refinancing makes sense as soon as possible. People who have older loans at rates of 6% or 7% could save thousands by refinancing, even as rates are rising.
“Get your documents ready, get quotes from a few different lenders and lock a rate as soon as you feel ready to begin the process,” de Costa said. “For homebuyers who are still searching for a home, it’s not as simple. But again, if you have found a home and the numbers work for you, go ahead and lock.”
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