Interest rates rose quickly in the beginning part of the second quarter of 2022. Seemingly overnight the housing market in the United States, especially in hot areas like Arizona, Texas, Florida, Nevada, took a hard turn in favor of the buyers who were having to sacrifice so much just to get an offer accepted these past few years. All of a sudden, the sellers no longer had the upper hand, yet buyers feel like they have missed the opportunity to capitalize on the low interest rates just as the inventory began increasing. At face value this train of thought makes sense, however if you dig little deeper you will find there is much more to consider than just the rate itself, especially if the goal is to save money in the long run.
As of the date of this post the current interest rates are 6.48% for a 30-year fixed and 5.63% for a 15-year fixed. This may sound high since we all were reaping the benefits of historically low rates for the past two years, which was a major factor for the unprecedented selling frenzy we recently came out of. However if you consider the historical average since the 1970s to the present is around 7%, we really aren't in a terrible place. The real question we should be asking ourselves is how much will I be saving or losing in the long run considering a few factors?
It really depends on what your goals are, whether you are an investor or looking to purchase your primary home. Any long-term strategy to include short term rentals, long term rentals, primary home, buy renovate and hold to name a few, has to take into account the following:
1. The rates may have gone up, but the home prices have been and will likely continue to drop. If you are saving 10%-15% for example on home, the additional 3% will likely equate to a cost savings rather than a loss over the time of ownership. On average most people hold onto a home for a period of 7-10 years all things considered.
2. Interest rates are always changing, real estate like most things is cyclical. The rates will eventually lower, giving home owners a chance to re-finance at a lower rate over the lifetime of the loan and/or ownership.
3. Consider your business model as an investor. This is especially true if you are in the rental space and your goal is doors under management. Hopefully you have hired a competent agent who understands the local market and has helped you acquire a property that will continue to increase in value over time, and one that is in the right location, with the right features to attract tenants year-round, at the highest possible rental price. If you've done this right, you are likely not going to want to sell this property any time soon, giving you plenty of time to adjust the rate when they inevitably come down again.
4. With the exception of a few business models like fix & flips for example, real estate is a long-term investment. You don't play the market, you find the right property, in the right location, with the right features and move forward when you have the means both financially and otherwise. Markets like Arizona will continue to grow steadily over time. Though it is important to consider all factors to include interest rates, there are many more things to consider when asking the question, "should I buy," or is this the right investment"? Perhaps the most important question to ask is "am I ready?" We can figure out the rest along the way!
