Tanya Vincent October 3, 2023
We’re going to dispel a common misconception – you shouldn’t buy a home when interest rates are high. We couldn’t disagree more! It’s normal to believe that a higher interest rate would mean a higher financial burden in the long run but this is simply not a given. Here are a few reasons why you shouldn’t snooze on a property in today’s higher interest market.
Lock in a low home price while everyone is worrying about high interest rates
Many people are uncertain about buying a home right now (due to the common misconception we mentioned above), and this might play to your benefit. Additionally, the large exodus of people moving out of California is opening up some breathing room for investment. Less buyers can mean less demand, which can also mean a potentially lower home price in your desired area. Over the long run, securing a lower home price is more important than avoiding a high interest rate because you’ll be able to adjust things later on. Furthermore, interest rates will fluctuate indefinitely – this is just the nature of the housing market – and if you wait for it to drop, you might miss the home that’s perfect for you.
Adjusting your mortgage later is better than waiting now
A high interest rate will often set off smoke alarms for people – I’ll be paying more money forever until my mortgage is done! No way! But there is almost always a way to adjust your mortgage down the line. If you buy your home and find you are actually struggling financially, there are loan modification programs that can help you, such as HAMP, Flex, USDA, or VA programs. If you’re doing okay with your mortgage and pay on time but want to lower your payments, you can also recast your mortgage, which essentially updates the terms of your existing loan. This is not a refinance and actually comes with lower fees. On the other hand, refinancing is a more involved change to your mortgage terms and would be most beneficial if you notice the interest rate going down, as this would almost certainly result in lower monthly payments. There are many types of refinancing options, depending on what you’re looking for. Lastly, you could work prepayment into your budget when you buy your home – this method essentially allows you to offset your interest rate over time.
The Bay Area’s unique tech-driven economy continues to show promise
Despite a recent wave of layoffs, the tech industry is still reporting profits to satisfy Wall Street's expectations. This is, in turn, fueling the Silicon Valley housing market and creating ideal conditions for securing an investment through real estate. The longer you wait to start an investment, high interest rate or not, the more investment time you’re missing out on. Neighborhood Scout indicates that “San Francisco real estate appreciated 111.65% over the last ten years, which is an average annual home appreciation rate of 7.79%.” What better place to invest than such a hyper-growth place like the Bay?
Of course, we are not saying that a high interest rate doesn’t matter. The interplay between interest rates and the real estate market is complex, and keenly navigating it can be the key to making a wise real estate investment. But we encourage you not to let a higher rate scare away you from considering your options and potentially securing a home that will greatly benefit you over time. If you’d like to discuss the best way to navigate today’s real estate market, you can always reach out to us here.
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