Should You Buy a House in Your Market Now?
Don't let the recent interest rate hike scare you.
When searching for a home, go where other buyers aren't looking and where prices haven't been inflated yet.(Getty Images)
There was a lot of hype over the Federal Reserve's recent decision to raise interest rates a quarter point, and for good reason. After seven years of almost zero interest rates, the Fed's vote to raise the central bank's benchmark interest rate from zero to 0.25 percent to a range of 0.25 to 0.5 percent was a big deal. But if that's got you wondering whether you should rush into the housing market and purchase a home before rates rise again, think again.
In other words, the interest rate has changed a little, but buying a home has not. Listen to your gut and look at where you are in life instead of what's in the news.
Still, if the interest rate hike has you rattled, it might help to remember a few things.
This is still a good time to buy. Ask any expert, and they will tell you that if you were going to purchase a house soon, you shouldn't let a slight interest rate hike dissuade you.
For instance, Sara Rose Bytnar is a partner, broker and auctioneer at Beth Rose Real Estate and Auctions, which has real estate and property auctioneer companies in Florida, Ohio and Michigan. While she is based out of Naples, Florida, she could be speaking for the entire industry when she says that "future homeowners are still in an excellent position to purchase real estate. When buying a home, buyers are making an investment."
"And even though rates did go up," she adds, "the benefits of long-term homeownership far outweigh any risk in paying a higher interest rate."
Really, if you've saved up for a down payment, have a good, stable job and you really want a house, then there's little reason to procrastinate.
"We know where the economy and housing market is today, but we can't always predict the future," Bytnar says. "Waiting another year, or possibly two, could mean an entirely different climate in our housing market.”
But don't rush to buy your home if you aren't ready. Common sense should tell you that a mad dash to take out a loan you're not financially ready for will create as many monetary headaches, and probably more, than waiting several years until you're in a good place but possibly paying a higher interest rate.
And maybe the interest rate won't be higher, or much higher. As Bytnar said: We can't predict the future.
Besides, higher interest rates may help with home buying. It sounds counterintuitive, but Sam Britt, a senior loan mortgage agent in Reno, Nevada, says the expected steady and slow pattern of increasing rates in 2016 should help the markets. Not just the markets in Nevada, but also nationally, according to Britt.
"Numerous lenders in the field have felt for a while now that the Fed [has] needed to raise the interest rates," Britt says. "With the rise in rates, banks will begin to make increased earnings through the higher rates, and thus the credit market will loosen, allowing easier loan qualification to occur for all segments of the market."
So if you have good but not spectacular credit, you may find yourself eventually courted more aggressively by lenders.
Location is everything. Should you buy a house in your market now? The key words in that sentence are "in your market." It's a big country, and in some places, you'll find great deals on homes. In other places, it would make more sense to rent. And then there are some cities where the demand almost always outstrips the supply, and prices, of course, can get out of control.
"Right now, would I buy a place in San Francisco? No. That market is higher than it's ever been before," says Mike Mirshahzadeh, chief revenue officer of The Money Source, a national correspondent lending company and mortgage loan servicer headquartered in Melville, New York.
He adds: "I would buy a place in Scottsdale, Arizona. There are places that sold for $1.4 million in Scottsdale in 2006 that are now selling for $800,000. There are areas where the values are still compressed and haven't rebounded yet. This means they still have room to rebound."
But if you work in a city and want to own property there, too (and you're OK with exorbitant prices), there's probably no need to wait.
"If you see something right now, especially in New York City, you should buy it because of the tight market," says Ogden Starr, a real estate agent with Brown Harris Stevens, which specializes in luxury residential real estate. "And it doesn't matter that it's the middle of winter. Most areas have seasonal times when it might be better to purchase a home. Spring, fall, whatever. New York used to have that, but now, whenever you find a home, you should be there making an offer."
He says New York City is likely to be a tight market for the foreseeable future.
If you're in the Midwest, where the homes are considerably more affordable, you may find that you have time to be a little more choosy, although even cities like Indianapolis and Cleveland, according to local media, have been seeing more buyers than sellers in recent months.
But no matter what part of the country you're in, there's one general rule you'd do well to follow, according to Mirshahzadeh: "Go to a place where everyone is not going to. The values of the homes aren't inflated yet; people are just starting to go there ... Look at the Santa Rosas, not the San Franciscos. Look at the Scottsdales, not the Miamis."
And Starr agrees that while the market may drive the decision of whether you buy a house now or a little later, don't let the interest rate hike call the shots.
Starr, who has been in real estate for 30 years, says that today's interest rates are nothing like they were in the 1990s and 1980s, when the annual average mortgage rate was around 10 percent and sometimes higher.
"It didn't seem high because that's the way it was. It never went way down," Starr says. "Millennials, who are going to be the main buyers very shortly, they don't know what high interest rates are. This latest rate hike is nothing. We're all very lucky now."