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Housing Market & Fear: A Clearer Perspective

For those of you looking at the Housing Market and living in fear of the unknown, here we hope to dispel some of the fear associated with buying or selling a home. While much of the information is true, there is no way to accurately predict what will happen in our market over the next year or two. However; we can look back at history and make some estimation of what may occur.

This chart illustrates housing prices and mortgage rates over the last 20 years. While 2008 saw a decrease in home prices and an increase in mortgage rates as high as 16+%, at that time we experienced massive inflation which was intensified by low interest rates, easy credit, insufficient regulation, and subprime mortgages — all leading to an economic crisis. The rules have now changed making this type housing crisis unlikely. New housing regulations and firmer lending practices have changed the criteria for qualifying and purchasing a home. This isn't a bad thing. In fact, the likelihood of a person qualifying for a purchase outside their monetary means is very low. This protects the consumer and the mortgage companies that are funding those homes.

Fast-forward to today, where we are now coping with the lasting effects of COVID. “We are experiencing this sudden surge in inflation for two main reasons,” says Craig Kirsner, President of Stuart Estate Planning Wealth Advisors in Coconut Creek, Florida. “First, for the past year and a half due to Covid hardly anyone was spending money. Now that the economy is back open, people are spending and traveling and, as such, there is a bottleneck with very high demand. Our system isn’t set up for this high demand level, so that causes inflation in the short term. Second, with interest rates lowered to almost zero since March of 2020, these low interest rates have spurred demand in housing which is experiencing a large backlog as well as adding to inflation worries.”

Is this reason not to invest in a home? In these post-covid times we now spend more. Not just a little more, a lot more. This, in turn, is driving us into a recession secondary to inflation.

Investing in a home is a hedge against inflation because homes continue to gain equity, not like in 2020 and 2021 but at a more realistic pace. "As a home price rises over time, it lowers the loan-to-value of any mortgage debt, acting as a natural discount. As a result, the equity on the property increases, but your fixed-rate mortgage payments remain the same."

Let's talk a bit about mortgage rates. For some, the thought is "Mortgage rates were lower than 3.0%, why should I buy a home at a higher rate?" The reality is this. Between Apr. 1971 and Oct. 2022, 30-year fixed-rate mortgages averaged 7.76 percent.

Historical 30-year mortgage rates chart

Chart represents weekly averages for a 30-year fixed-rate mortgage. Source: Freddie Mac

By July 2020, the 30-year fixed rate fell below 3% for the first time. And it kept falling to a new record low of just 2.65% in January 2021.

We are unlikely to see mortgage rates this low anytime in the near future this time we are still well below the average.

Now, on to the future. Mortgage rates are predicted to continue to increase well into 2023. If you are renting and considering buying a home, the time to move is now while rates are still below the average so you can build your equity, enjoy homeowner tax breaks and have the home of your dreams. Then, when rates go down you can refinance at a lower rate and rest easy knowing you've made a wise investment! Happy home hunting!

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