Let's face it, higher interest rates are going to be around for longer than most of us expected. And the pandemic rates of record lows may never be seen again. So when will mortgage rates reverse course? Well that is anyone's guess but predictions are pointing more towards the second half of 2024. In this article we'll explore what interest rates are, where they are headed, and how this can help buyers better understand the options available to them now and in the future.
The overall state of the economy plays a significant role in determining mortgage rates. Factors such as inflation, economic growth, employment levels, and central bank policies impact rates. During economic downturns, interest rates may be lowered to stimulate borrowing and economic activity. This is exactly what happened during the pandemic to pump up our economy and it worked. Conversely, when the economy is strong, interest rates tend to be higher to control inflation - and this is where we are today. The tremendous growth post pandemic was fueled by the stimulus and similar easing of monetary policy which caused inflation to rise to an unhealthy level.
So what is inflation you ask? At a basic level, inflation is a measure of how much the prices of goods and services are increasing over time. When inflation is high, the dollar's purchasing power decreases — in other words, it becomes more expensive to buy the things you need. It also becomes more expensive for lenders to lend out money, which directly impacts mortgage rates. Keeping inflation at bay may take some time and policy makers don't want to ease up just yet - only time and data will tell.
What we do know is that higher interest rates can reduce affordability and potentially deter some potential homebuyers from entering the market or qualifying for loans. Some buyers may opt for more affordable properties or consider different financing options, such as adjustable-rate mortgages, to mitigate the impact of higher rates. Over the past several decades average mortgage rates have ranged from as low as around 3% to as high as around 18% in the US. Today we are nearing the 7% mark which is still below the 30 year mortgage rate average of 7.74%. In Charleston the home buyer market is still strong, with with well qualified and all cash buyers continuing to purchase the available inventory in record volume.
Recently a client of mine asked if it was still a good time to purchase a home - and the answer is yes. For 11 consecutive years, a Gallup voted poll ranks Real Estate as the best long term investment - beating out gold, stocks, mutual funds, and bonds. If you intend to hold onto a property as a long term investment the home's value will likely appreciate over time, potentially outweighing the costs of higher interest rates. Case in point - home prices year over year to date in South Carolina have risen 9.5%, the highest percentage growth rate in the South East US. If in the future a drop in interest rates occurs, you can always choose to refinance your mortgage at a lower rate reducing your monthly out of pocket expense. I always recommend talking with a minimum of 3 lenders to carefully compare their offers to find the best ones on the market today.
You may have heard the saying "Marry the house, date the rate" and this is where that saying applies. Attempting to time the market for the best possible interest rates probably isn't the best strategy towards home ownership. I suggest making decisions based on your budget, goals, and speaking with a financial advisor.
By: Dustin Guthrie, Realtor
