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Opportunity Is Knocking For Senior Sellers And Younger Buyers Despite Market Uncertainty And Stubborn Interest Rates
By Kevin Joyce
The average rate on a 30-year mortgage eased to just below 7% this week, its first decline in more than a month of weekly climbs. The rate fell from 7.04% to 6.96%, according to Freddie Mac. A year ago, it averaged 6.69%.
Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners seeking to refinance their home loan to a lower rate, also eased this week, down to 6.16%. A year ago, it averaged 5.96%.
These rates likely reflect the “new normal” — at least for now.
“While affordability challenges remain, this is welcome news for potential homebuyers, as reflected in a corresponding uptick in purchase applications,” said Sam Khater, Freddie Mac’s chief economist. Buyers know that elevated mortgage rates can add hundreds of dollars a month in costs for borrowers and have discouraged some home shoppers.
What does it all mean?
For home shoppers, who have sat on the sidelines, waiting may no longer be an option. Many retirees and aspiring retirees have put their homes on the market hoping to leave the snow and ice (and high taxes) in the rearview mirror. Inventory is out there, but so are other buyers.
Many experts fear that some of the new administration’s policies may spur additional inflation, making future cuts in interest rates less likely. If inflation returns, interest rates and home prices will likely increase.
And, as discussed in my last few articles, interest rate fluctuations foster uncertainty: Interest rates are unlikely to fall significantly, if at all, so the time to shop is now. Timing the market is impractical, perhaps impossible, and unnecessary.
If you buy a home and mortgage rates fall, buyers can refinance their mortgages and take advantage of lower rates. If rates go up, you benefit from a secure, affordable mortgage.
But, if you delay a purchase and rates go up, it only becomes harder to afford a home. And, inflation favors the homeowner with a mortgage, making a fixed mortgage payment more affordable over time.
Plus, the time is right to start building equity. Anyway you look at it, homeownership builds wealth. According to CoreLogic, the average homeowner today has about $315,000 in equity, compared with an average of only $186,000 at the start of the pandemic.
Older homeowners are the most active in the market right now with the typical age of sellers at 63. This works locally because home prices down south are starting to fall, especially in Texas, Florida and other southern markets that have been overbuilt.
Let’s face it – today’s 30-year fixed mortgage rates around 7% reflect a new normal. If rates go down, buyers can refinance. Staying out of the market isn’t really an option anymore. Rents have grown as fast or faster than home values, and a shortage of rental options, especially for younger buyers, is certain to keep rents high. Much of the new apartment inventory coming on the market is being built for seniors or is government subsidized.
Here’s the takeaway. If you are planning on retiring soon and moving to a more affordable state, the time has never been better to list your house and sell. If you are in the market to buy, mortgage rates are unlikely to retreat dramatically. The time to start building equity in a home is now, knowing the option to refinance is always out there, and knowing that home prices are only likely to continue to rise.
