Soaring mortgage rates are pushing home buyers back. But should higher interest rates keep you from buying a home?

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It’s easy to see why buyers are backing off.


Key points

  • Mortgage demand is down 29% from a year ago.
  • With 30-year loan rates exceeding 6%, it’s easy to see why.
  • Consider your personal circumstances when deciding whether to buy now or wait.

Last year house prices were at record highs and housing inventories were limited. This year, conditions have been similar – but there has been a key difference between the housing market of 2021 and that of 2022.

In 2021, home buyers could benefit from low mortgage rates. In fact, rates were low enough to help offset some of the rising home prices seen by buyers.

This year, however, mortgage rates have risen steadily since January. And recently, the average 30-year mortgage passed the 6% mark. So it’s no shock to learn that purchase mortgage applications are down 29% from the same time last year, according to new data from the Mortgage Bankers Association.

But are higher mortgage rates a reason to put your home buying plans on hold? Or should we still go ahead?

Why you might want to pause your home search

It’s not just that mortgage rates are higher right now, it’s that house prices are still very high. Certainly, we are starting to see a slowdown in the rise in house prices, which is a good thing for buyers. But all told, buying a home is a very expensive prospect these days, and buyers have to deal with the double whammy of higher prices. and higher borrowing rates.

If you are financially hesitant about buying a home, you may want to consider putting your plans on hold and waiting for home prices to come down. This could happen in 2023 if housing stock continues to rise, which it has been doing for the past few months.

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Why you might still want to buy a house now

It is true that if you buy a house by the end of 2022, you could end up paying a lot and end up with a higher mortgage rate than you would like. But if you’re in a stable financial situation — say, you’ve got a great job, lots of savings, and plenty of money for a down payment — then you might want to take the plunge into home ownership and start enjoy the benefits. These include the ability to build equity, take advantage of tax breaks such as deductible mortgage interest, and not having to follow a landlord’s rules.

Also, while mortgage rates may be high right now, we don’t know where they will be in two or three years. So even if you initially face higher borrowing costs, you can still look to refinance your mortgage if rates start to drop. So if, for example, you end up signing a 30-year mortgage at 5.9%, you might be able to swap that mortgage for a new one at 4.2% in a few years, lowering your monthly payment.

What’s the right call?

In the end, it’s easy to argue that you shouldn’t buy a home right now because of rising home prices and mortgage rates. But if you’re really keen on owning and you’re in a good financial position, it might be advantageous to buy in the short term, regardless of those economic conditions.

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