How to navigate today's challenging housing market

A swift rise in interest rates has many buyers wondering how the higher borrowing costs will impact the housing market and their budget. Even though interest rates have been rising, rates at around 5% are still low from a historic perspective and the difference in monthly payments may be lower than you think. You also need to factor in the cost of waiting to purchase which comes down to higher home and/or rent prices and possible higher interest rates. Freddie Mac says it expects the 'single family purchase market to remain solid in 2022 despite rising rates'. They predict even though prices and rates will moderate somewhat, there will continue to be a substantial housing demand partially propelled by the large swath of 1st time home buyers and buyers wanting to lock in before rates go up more.

If the housing demand keeps on being strong, rising interest rates might not have a direct impact on home prices. Even if half of the housing demand disappears, we still would not have enough homes to meet demand. While low interest rates have created a diversion, inadequate attention has been given to how big the demand for housing really is. We have way more people than homes. There is currently an excess demand of $2 trillion dollars ready to be borrowed if we had enough homes to sell. 

One way to come to terms with the higher interest rates is consider buying 'points' when you apply for a loan. Every discount point is 1% of the loan amount so on a 30 year mrtg for $500,000, 1 point would be $5,000. Every point can lower your interest rate by about .25. In order for this to be advantageous you first need to determine how long you plan on staying in your home or have the current mrtg loan to make sure it is long enough to recoup the cost of your discount points. If your loan has a PMI (private mortgage insurance) and you plan on refinancing within the next few years, buying points does not make sense.