Tuesday, January 3, 2023 / by Kelly Cash
"Date the Rate, Marry the House" - The Complexities to a Potentially Toxic Relationship
I am sure many of you have heard the phrase “date the rate, marry the house”. It is probably one of the most used phrases in real estate marketing when the market is changing and interest rates are rising. With rates increasing and home prices still at record highs, it should be no surprise that movement between buyers and sellers came to a near screeching halt. Buyers became hesitant to move forward with uncertainty of a looming recession. Others became priced out entirely with the rapid increase in rates.
While ‘date the rate, marry the house’ sounds like a great plan, it also poses higher risks that can be detrimental if not considered.
In terms of the direction of home values, there’s also some uncertainty. The years 2020 and 2021 brought an unprecedented run in home appreciation with ultra low interest rates as we became accustomed to working from home amid the Covid pandemic. We do not have a crystal ball but it is unclear how things will shake out after we saw 30-40% appreciation in the last 36 months. It is not unlikely to see a correction in prices, especially with less home sales taking place. If that possibility becomes reality, buyers who entered the market with low down payment loan options may be getting more serious with their interest rate than originally planned.
It is likely we are headed into a recession. With that, mortgage rates typically decline and there is a possibility as with every recession, to see a spike in unemployment numbers. If your job security is definitely something to be cognizant of. Recessionary indicators point toward a reduction in GDP as well. Historically, this has stymied the inflationary figures that caused rates to spike in 2022.
Home prices also seem to be on relatively stable ground, thanks in large part to persistently low inventory. But to purchase a home today solely based on hope and probability is to ignore reality of what could happen
2019 isn’t too far back in the rearview mirror, and not a single expert’s forecast included the prediction that the world will shut down like it did during the pandemic. Russia’s invasion of Ukraine and the resulting global proxy war leading to inflationary pressures in the fuel and energy sectors wasn’t on many experts’ radar either.
While we think rates will be lower in 2023, we don’t know how low they’ll go. And while we think home values are relatively safe, we just don’t know. We do know that homeownership is worth marrying.
Long term, there has been no better way for the average American to accumulate wealth and improve their financial security. Homeownership, though, includes today’s rates. At a fixed rate, a home buyer knows what their monthly payment will be every month (excluding fluctuations in taxes and insurance.)
If you can afford today’s rate, you should buy a home with today’s rate. You can hope for a better rate tomorrow, but you shouldn’t plan on ‘dating the rate’ as if it’s a sure thing.
Home buyers shouldn’t be making what might be the largest financial decision of their lifetime based on hope and speculation.