You’ve heard the old expression, “Date the Rate but Marry the House.” The
idea is that you can always refinance the loan, but the right house may not
come around again. But with rising interest rates and falling home
inventory, many buyers are wondering if this mantra still rings true. Should
you marry the house at whatever interest rate is available?
First, the US lending market has been experiencing record-low interest
rates. In May of 2000 saw the 30-year fixed rate rose to an average of 8.6%
before falling to 6.5% in July 2008. Historically, any long-term interest
rate under 6.5% was considered exceptional. The pattern of rising and
falling interest rates has been repeated multiple times in the past 40 years
and likely will continue.
While purchasing an unaffordable home with the hope of refinancing
quickly into a lower rate is a poor strategy, so is waiting on the home that
you like or need if you can manage the payment. A simple truth of the
housing market is that as rates increase, home values usually decrease as
more buyers are forced from the market. This offers the opportunity for
buyers to find a home previously unaffordable. When rates do decline, they
can refinance for even more savings.
The concept of “Date the Rate and Marry the House” is not new. Home
buyers in this real estate climate need to be more intentional about the
home they choose and the costs incurred. Rates will most likely increase
before they fall, so weighing the lower home price with the higher interest rate
is a personal decision to be taken carefully.