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Though Interest Rates are Rising, it Remains a Favorable Market for Buyers

  • February 5, 2019

Though Interest Rates are Rising, it Remains a Favorable Market for Buyers

As headlines blare about rising interest rates and a potential market slowdown, one might think 2019 will be a dire one for homebuyers.

Think again.

While it’s true interest rates are climbing on 30-year fixed rate mortgages, the current real estate environment remains a favorable one for buyers. Here’s why:

Consider Context

Yes, interest rates on 30-year fixed rate mortgages are indeed trending higher. In the final quarter of 2018, interest rates sat at 4.78 percent, according to Freddie Mac. While that 4.78 percent mark represents a more than 1 percent jump from the historically low 3.65 percent average of 2016, it is still lower than any annual rate from 1988-2009.

In the late 1980s, for instance, interest rates regularly exceeded 10 percent. In the 1990s, rates hovered around 7.5 percent. Throughout the first decade of the Millennium, rates floated near 6 percent. Against that broader context, last quarter’s 4.78 percent figure represents a comparative bargain. (Of note, rates dropped to 4.45 percent in late January, according to Freddie Mac.)

Comparing current rates in the neighborhood of 4.5 percent against 2016’s almost unfathomable low shortchanges the present climate and just how favorable current rates remain.

Confident Homebuilders

According to the January 2019 National Association of Home Builders/Wells Fargo Housing Market Index, homebuilder confidence sits in a stable place. Amid low unemployment and solid job growth, many of the nation’s homebuilders largely view 2019 with optimism.

Though homebuilders certainly face headwinds, including rising construction costs, a more confident, healthy homebuilder is one who invests in his team, his product and his buyers.

“When you have confidence in the market, it’s that much easier to push ahead and be an innovative force for your buyers,” says Gallagher and Henry principal John Gallagher.

A More Balanced Market

Though home prices have been accelerating for years, prices and inventory are reaching more moderate levels. In 2019, many analysts foresee a more temperate climate prevailing.

Rather than feeling rushed and overwhelmed, a more normalized market offers homebuyers an opportunity to catch their breath and assess the market. Buyers can consider all homes that fit their budget and preferences, including new construction that arrives without the maintenance or updating costs of an existing home.

The Reality of Opportunity Cost

If rates continue to click upward, as a good number of economists predict, then those hesitant to jump into the real estate market will face an opportunity cost for that timidity.

Credit bureau TransUnion forecasts that rates could hit 5 percent by the end of 2019. What’s that mean? On a $500,000 home with 20 percent down, the difference between a 5 percent annual interest rate and a 4.5 percent rate is $244 a month – nearly $3,000 per year and over $87,000 over the 30-year loan term.

Predictions by TransUnion and the like, of course, acknowledge rates ever-fluctuating nature. Even so, smart money sits on climbing interest rates that will prove costly for the indecisive.

“There’s a great window of opportunity for those who act now,” says Mark Zdenovec of Naperville-based Stearns Home Loans, the preferred home lender for Gallagher and Henry.