With Mortgage Interest Rates Rising and Inventory of Resale Properties Low, Some Nervous Buyers May Be Tempted to Sit on the Sidelines

As the U.S. economy further improves, it is common knowledge that the Federal Reserve plans to continue raising the prime rate of interest (the rate upon which most other loan interest rates are based) to “normalize” the economic recovery following the Great Recession.  In case you hadn’t noticed, this has meant the slow but steady increase in mortgage interest rates over the last 12 months or so.  The interest rate any given borrower will pay depends on a myriad of factors, including credit worthiness, of course.  Rates that had been as low as 3% for 30 year fixed rate mortgages more than a year ago have risen to the 5% range.  Any increase in interest rates means a coinciding increase in the monthly mortgage payment a home buyer can expect to pay. 

Further complicating things has been a consistently low inventory of resale homes.  This has driven up the price of homes, as buyers find themselves bidding against each other for a more limited pool of homes for sale.  Property values that had declined substantially following the economic downturn in 2008 and 2009 have recovered to pre-2008 levels in many areas.

All of this has frightened some home buyers out of the market.  Buyers begin to wonder if they might now be paying too much for a home.  Combining this with higher mortgage interest rates can begin to make some wonder if they might be overpaying on at least two levels—purchase price and carrying costs.

Of course, the only way to judge when you might be paying “too much” for a property is to do your homework.  This is really a question to be answered on a case-by-case basis, using data for recent sales of comparable nearby homes.  This is big decision for even the most experienced buyer, and you need to be armed with as much objective information as possible.  As our company motto goes: “solid analysis identifies great opportunities.”  This is true in any market, and it is certainly true where there is any risk that you might be overpaying for a property.

With respect to interest rates, the market is still characterized by relatively low mortgage rates.  I am old enough to remember interest rates on the Carter administration over 18%!  Even 5.5% seems very reasonable by comparison to that.  And as long as rates remain in that range, the buy vs. rent decision will remain a “no brainer.”  With mortgage interest still deductible for income tax purposes, and with home values continuing to rise gradually in the Charlotte metropolitan area, there is really nothing to be afraid of.  Yes; it is always wise to be cautious and to do your homework—in any market.  But real estate—especially a principal residence—remains one of the most sound and attractive wealth-building investments anyone can make.

If you have any questions or would like to search the entire Charlotte area MLS system for homes, townhouses, condos, etc. -- including foreclosures and short sales-- visit our web site: www.EricDorerRealEstate.com.