Last month, the Federal Reserve implemented its second interest rate hike of the year and indicated there could be two more rate hikes to come in 2018. Understandably, the news created some buzz in the housing market as the Fed Funds Rate affects mortgage rates.
While mortgage rates have been gradually on the rise, it shouldn’t deter prospective buyers from purchasing a home if they have the means to do so. Here are a few things home buyers and sellers should keep in mind:
4% to 5% Is Still a Steal (Historically Speaking)
It’s true that higher mortgage rates affect purchasing power and make buying a home more expensive. But it’s important to remember that, even in the 4% to 5% range, mortgage rates are low by historical standards. Throughout the 1990s rates were in the 7% to 8% range, and in the 1970s and ‘80s, they were double digits.
Buying Still Beats Renting
With borrowing costs still relatively cheap, home-buying remains more affordable than renting in several areas of the country, including Chicago, where rents are near all-time highs. (Keep in mind this varies depending on how long you plan to stay in your home). The rent-versus-own gap narrows as rates rise, but homeownership today still presents a great opportunity to get into a home, build equity and save money.
Increasing Rates Spur Buying Activity
Rising rates create a sense of urgency among buyers who have been sitting on the sidelines. That’s because it gives them more incentive to purchase a home now to lock in their rate with their mortgage provider before rates climb higher. More buyers in the marketplace mean it’s an opportune time for sellers to make a move as well.
Economy Is Improving
The basis for the rate hike is good news. It indicates our economy is strengthening and the Fed has an overall positive outlook.
“There’s no need to fear rising interest rates. It’s the sign of a growing economy and we’ve been at unrealistically low rates for a long time,” said Kevin Van Eck, EVP of Innovation and Education for @properties. “Homeownership and buyer and seller activity are affected by a lot of variables, but rates specifically will affect affordability for buyers, and that’s why, in some cases, we see buyers adjusting their timelines to take advantage of where rates are currently.”