Thinking of buying a home? What effect will interest rates
have on your investment? Whis article explains all.
Buying a Home when Rates go Up
Many people fret the rising tide of interest rates. You’ll
hear things like, “Did I miss the boat? Is it too expensive now to buy a home?
How can I afford the house of my dreams? Maybe I should wait! Maybe I should
just rent for a while! Maybe the rates will go down in a few weeks."
Stop! Nonsense, I say!
I bought my first home at close to 9%. Buyers from the 80’s told me I was
getting in at a bargain, and anyway, who cares? I don’t. I refinanced long,
long, long ago. 9% is just a part of history now.
So, here’s 5 important points you need to keep in mind, when the ebb and flow
of interest rates, ebbs up, more than it flows down…
1. There’s no better time, then NOW!
2. Long Term Investing
3. Creative Financing
4. Uncreative Financing
5. Buying a Home when Rates go Down
1. There’s no better time, then NOW!:
I know it sounds cliché, but it’s true. There’s no better time to buy, then
a) Because if rates are going up, then the law of supply and demand
insists that the rising price of homes will likely slow down.
b) Since appreciation slows down when rates go up, this is an
opportunity to buy at a perceived discount
c) Remember, rates fluctuate, and nothings forever. So, it’s more
important to get your darned foot in the door, right now. You can always
refinance later, as rates ebb and flow back down. You’ll still have the benefit
of having gotten into the house, at a lower, discounted price, and you can then
enjoy both a low rate when you refinance, alongside knowing that you got the
house when prices slowed down, maximizing the gain when appreciation revs back
See what I mean? Don’t wait. It only gets more expensive. There’s always, no
better time, then NOW!
2. Long Term Investing:
If this is your first home, then you have to think beyond the next year or
so, and move your frame of reference into a longer futuristic point of view.
a) Are you going to live in the same house, for at least 5 years?
b) Most of us would answer yes, therefore, you need to be more
concerned with real estate in the long term, let’s say beyond 5 years, and you
need to be less concerned with the short term rise and fall of rates. You’ll
drive yourself nuts otherwise.
c) 5 years is a pretty solid range of time, for rates to go both up,
and down. In other words, history proves that for the most part, you’ll live
through the ebb and flow of rising and falling rates, as a homeowner, and you
know what? You’ll survive; in fact, you’ll thrive, because you’ll enjoy a net
gain in appreciation over the long term.
So rates go up and down in the short term, but in the long term, real estate
always appreciates, and that means that homeowners always win.
3. Creative Financing:
This is the good stuff. When rates go up, opportunities abound. You see, many
homeowners, builders, and developers, find themselves in more negotiable
positions because of the laws of supply and demand. Surplus rises, and buyers
a) If financing is an issue, then you may be able to negotiate with
the owner to carry the note, and completely bypass more conventional lending
b) If affordability is an issue, then perhaps you’ll find many more
re-sales out there, perhaps fixer-uppers, ready to negotiate for a lower price
(Can you say, built in equity?)
c) If discounts and incentives are your game, then perhaps you’ll
locate some developers anxious to move inventory, with a flare for adding a
rebate, or doing you’re landscaping, or building that retaining wall you wanted.
The key here (and this is very important), is to find an excellent real
estate agent. I can’t stress enough, how important it is to have someone on your
side, who understands the lay of the land. Don’t go at it alone. Just go find
someone knowledgeable, who you can trust, and who is ready and willing to roll
up their sleeves, and go to work for you.
4. Uncreative Financing:
As of the writing of this article, rates are still very, very low. Anything
below 7%, for a fixed rate, in my opinion, is totally workable.
a) Between 1979 and 1990, fixed interest rates ranged from 11% to 16%
on average. This is highly unusual historically, of course, but it is an
excellent benchmark, when you evaluate how good, or bad, things are right now.
b) So as you’re exploring your choices, don’t lose sight of the big
picture. Getting your foot in the door is more valuable, then being left out in
c) One other important point. For all those homeowners that purchased
in the 80s, do you think they’re terribly concerned now about the ebb and flow
of rates? Do you think they kept their 11% fixed rate loan, or do you think they
refinanced when it dropped down to 6% (or paid the house off by now). I’d
venture a guess, that virtually all of them; have a nice, hefty, bulky,
attractive pot of equity sitting on their front porch step today.
5. Buying a Home when Rates Go Down:
When rates go down, of course, it’s obvious that getting a loan and buying a
house is extremely attractive.
a) But when rates go down, there is a lack of homes on inventory.
b) Can you say, “Non-negotiable”, or “bidding war”, or “oops,
c) When rates go down, the seller is in the driver’s seat, and the
buyer is running around with checkbook in hand, yelling “Where do I sign?”
Keep that in mind. Which would you prefer? Personally, I dislike high rates,
but I LOVE being in the drivers’ seat. I guess in the end, you’ve just got to
work with whatever environment exists today. Any way you look at it, you can’t
stop and wait until the cards stack up in your favor. You just have to dive in,
and get started. If you like to be creative, if you like opportunities, and if
you like to be in the drivers seat then rising rates shouldn’t bother you in the
slightest. Renting is more of a crime to your finances, in the long run.
We’ve enjoyed providing this information to you, and we wish you the best of
luck in your pursuits. Remember to always seek out good advice from those you
trust, and never turn your back on your own common sense.
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Copyright 2005, by
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When Rates Go Up, Tom Levine provides a solid, common sense approach to
solving problems and answering questions relating to consumer loan products. His
website seeks to provide free online resources for the consumer, including
rate-watch, tips and articles, financial communication, news, and links to
products and services.
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