The economy has been through extreme highs and lows in the past few years, with several factors contributing to these ups and downs. Mortgage rates were at record lows not long ago, causing an increased demand for property that has been driving up prices. However, just like most trends, low mortgage rates tend not to last forever. Now, interest rates are up, keeping these home prices high even though they may be unaffordable for some. While this may seem like a good thing for sellers, it’s a tough situation for homebuyers. If you’ve been watching 30-year mortgage rates and want to learn more about why this may be the worst time to sell, keep reading.
Mortgage rates are up
According to Redfin.com, the monthly mortgage payment has increased twenty-five percent from a year earlier (this data was collected during four weeks ending February 6th, 2022). This means potential home buyers should be prepared to pay more monthly for their mortgage on a new home.
When mortgage rates go up, housing prices also go up, requiring borrowers to take out larger loans this year than they would have last year. Forty-one percent of homes sold above list price in February 2022, up from 32 percent last February. So, if you’re thinking about moving, now is probably not a good time. Though you may get higher than the asking price on the home you’re selling, you’re likely to lose some, if not all, of your profits on the purchase of the new house.
Time to refinance?
Since the current mortgage rates are up, the window of time to refinance has passed for most homeowners. As a general rule, if you can reduce your rate by at least 0.75 percentage points, it will pay off in the long run. But, mortgage rates have increased by almost an entire percentage point since the beginning of the year, putting fewer and fewer people in a good position to refinance. If rates continue to rise, as is expected, more homeowners will lose the incentive to refinance entirely.
Should I move or not?
With the high mortgage interest rates and home prices, the housing market will remain highly competitive in 2022. As a potential homebuyer, however, the incentives to move and purchase a new home are getting lower by the day. With the combination of high rates and high prices, many people feel stuck in their current homes.
But don’t worry, all is not lost. Redfin’s Chief Economist Daryl Fairweather noted that if you plan on moving and staying in your new home for at least five years, you will likely have made a good purchase. The market ebbs and flows, and it is predicted to turn around again in the next five years or so. For short-term purchases, however, your investment might not pay off.
The decision to move is huge, especially if you are selling a house and buying a new one. Between mortgage rates, property values, school districts, crime rates, and more, there are tons of factors to consider. When the economy is in flux, the housing market changes, and this can make the decision to move even more complicated. In such unsure economic times, big investments, like homes, may not be the best idea as you could take a massive loss if and when you sell.
If you’re a potential home-seller, the current housing prices may be tempting you to list your house, but keep in mind that if you choose to move into a new home, you’ll be buying a new home with the same higher pricing. Long story short, higher prices combined with higher mortgage rates may make the incentive to sell less worth it. That being said, if you plan to rent or downsize, this may be the best time as you can sell high and buy less expensive property.
Refinancing is a good solution for homeowners who are planning to stay awhile, but with rates rising, the window of opportunity for this option is closing too. If you must move, don’t panic. As long as you’re planning to stay in the new place for at least five years, you likely won’t regret the decision. Like all trends, the housing market highs come and go, and you’re likely to see a lot of change throughout any 30-year mortgage. Buying and selling a house can be risky, but most investments come with some risk. As long as you keep an eye on the market and make educated decisions, you should be just fine.
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