By Johanna Wiseman
The interest rate for a 30-year fixed mortgage, the standard option for financing the purchase of a home, has risen to its highest level since the year 2000. The Federal Reserve began a series of regular increases in March 2022, as part of an ongoing drive to curb inflation. Since then, potential buyers have been shocked to see their projected monthly payments go up dramatically.
Rates are currently fluctuating around the mid-7%s. Conventional wisdom holds that rising interest rates will cause home prices to drop. If the price of home ownership becomes more challenging, it’s expected that buyers’ purchasing power will be reduced or postponed, ultimately shrinking the buyer pool. Fewer buyers might tip the balance away from the current seller’s market and lead us to a place where home sellers would have to negotiate their prices to interest qualified buyers. We saw this in 2008. That crisis tightened purses and even caused some borrowers to default, resulting in a steady decline in home sale prices. Most homes in our area did not regain their value until 2014 or later.
In direct opposition to the 2000s economic downturn, today’s housing prices have risen in tandem with mortgage rates. Low inventory, a very limited number of homes for sale, is the primary reason for rising home prices. Prices stay high when there are too many buyers competing for too few available homes.
Current homeowners with pre-2022 mortgage rates ranging from 2.5% to 4.5% don’t want to relinquish their favorable rates, even if they would like to purchase a different home. Recently, we’ve been seeing the normal turnover of homes impeded by a lack of willing sellers. There is very little new construction to add inventory.
Homeowners without mortgages, or those who plan to leave New Jersey for states with a lower cost of living, will see the greatest financial benefit from the high sale prices of their NJ properties.
Some buyers have funds on deposit from a previous sale or pre-inheritance cash earmarked for a home. Almost everyone else is using conventional financing to purchase their homes. Their main question is, “Should I wait for rates to come down before I buy a home?”
“If you find the right house and you’re in a good financial position to buy, you shouldn’t let the opportunity slip while waiting for rates to fall,” said David LaFever, an experienced local Loan Officer from CMG Home Loans. Dave’s 36 years in the home loan industry, covering the full range of market conditions, are a testament to his knowledge of the big picture. “For example, our Rate Rebound program allows you to buy your dream home now and get a lower rate later (when the market rate falls) with a free or minimal-cost refinance.”
The mortgage industry is adapting to the rate increases with smart alternatives, and we have not exhausted the pent-up demand for homes in Somerset County.
Don’t let the current real estate climate confuse or intimidate you. Seasoned real estate and mortgage professionals have the long-term expertise to answer your questions, find solutions, and guide you toward achieving your goals.
Local expert Johanna Wiseman of RE/MAX Preferred Professionals can be reached at 908-705-0652, or visit www.MyBridgewaterHome.com
