Will buying a home now for less at a higher mortgage interest rate be cheaper than buying a home later with a lower interest rate? In a word: probably. And almost certainly.
Many of today's home buyers are obsessively focused on the low-interest rate they secured in the decade-plus of artificially low rates or the low-interest rate they should have secured but missed out on. And they are right, it is cheaper to own a home with a lower interest rate.
But - what about prices?
Home prices came down in many areas and at many price points to adjust to the reality of affordability. A higher interest rate makes owning a home at the same price less affordable. This is less of an issue in Manhattan where such a large percentage of buyers purchase for cash (57% in Q1 2023!), but prices are still on a downward trajectory and there are bargains to be found. And what is the alternative to buying? Rental prices continue to skyrocket as more potential buyers choose renting until mortgage rates come down and there is greater certainty in the overall economic picture. And remaining in the current home may not be a comfortable option, or even possible.
At some point, interest rates will come down as inflation comes under control or we face a high probability of actual recession. When that happens, those not severely impacted by an economic downturn are likely to re-enter buying mode. Pent-up demand is a powerful driver of markets: look at 2021 and 2022 as a reminder - the bidding wars and meteoric rise in prices are still fresh in our minds.
Now combine pent-up demand (sales volume plummeted almost 40% year over year locally), with frustrated renters fed up with spiking rents, empty nesters buying an additional home (or two), people living longer and working longer, massive in-migration (legal and otherwise millions!), the greatest transfer of wealth in history (Many trillions of "stimulus"!), and then throw in that we are already under-supplied and under-built by millions of homes. What do you anticipate will happen to prices?
While buying now with higher rates may be more expensive than it was last year, it is likely to be less expensive than this time next year. Buyers beware: when (not if) rates come down, the housing market could reawaken dramatically, possibly post-covid-lockdown-style.
So - buy now, or wait? It depends - on where interest rates go, and on where prices go. In all likelihood, it makes economic sense to buy now rather than wait.
My recommendation today remains the same as always: if you find a home you love that meets your needs, and that you can afford, buy it. If you buy well, you will be able to sell well.
One final thought and I hate that it sounds so cliche - you can always refinance. Marry the home; date the rate. Buy now and beat tomorrow's competition. Let a good broker find an eager seller and negotiate a killer deal on your behalf. Carpe diem. Seize the day! Let's go!
