Have you been wondering what the crazy news headlines about interest rate hikes and housing inventory mean for your home purchase plans? In this video, I’m going to chat with Brett Janzen of RE/MAX Capitol Properties to find out what the state of the housing market is. We’ll talk about everything from mortgage rates to increasing your net worth so you can decide if buying a house is right for you.
Rising Interest Rates
Lately, Brett and I have been getting a lot of questions about the state of the housing and mortgage market. People are seeing in the news that the Fed has been raising the interest rate. Because of this, one of the main questions they have is what that’s doing to mortgage rates and why they are doing it.
The Fed did raise rates three-quarters of a percent recently. While many people feel like that made mortgage rates go up, it's actually the opposite. When the Fed raises rates, it's because they're fighting inflation—which is currently at an all-time 41-year high.
As they raise those interest rates, inflation comes down. As inflation comes down, so do mortgage rates. If the Fed is successful at cooling those inflation rates, we should start to see mortgage rates come down—maybe even as soon as the end of the year. This will be a really good opportunity for people.
Supply And Demand
Another question people wonder about is what the inflation rate and mortgage rates are doing to property values. The answer to this is a bit complicated, as there's more to consider than just inflation and interest rates. One of the main factors is supply and demand.
Supply and demand is one of the cornerstones of capitalism. It’s also one of the strongest forces in the market today. We've seen rates go up at a really high rate the last couple of years, but we're also seeing Millennials starting to buy houses in large numbers for the first time. This only makes the supply issue worse.
We currently have a low inventory, both nationwide and here in Cheyenne. While demand is up, we're most likely not going to see the supply get better anytime in the next couple of years.
One of the other big things my clients are worried about is a recession. The reality is that a lot of forecasters think we're already in a recession. The markets define a recession as two quarters or two consecutive quarters with negative GDP. In our first quarter this year, it was already negative by about 1.6.
Additionally, they came out with a forecast that they think the second quarter will be negative 2.10. This means we're probably already there, though they won't say it until a little bit later. Of course, during a recession, people lose jobs and incomes go down. However, the good news is this recession should be a little more minimal than the Great Recession of 2008.
One of the statistics that we see consistently for over 100 years is that every recession has resulted in lower interest rates and higher home prices. A recession is not a terrible time to buy a house if you can qualify.
When looking back to 2009 and 2010, people did lose some value in their property during the Great Recession. Usually, they lost enough that by 2012, they were back to a breakeven point. The reality is from 2012 to now, we've had historical appreciation rates. People have made a tremendous amount of money in their homes, and it has been pretty amazing.
So is it better to go ahead and buy a house now, or should you wait for interest rates to go down? The answer is that a person should buy a house as soon as they can qualify to buy a house. If you're not a homeowner, you're a renter—and you're paying somebody else's mortgage. When you give up on historic appreciation rates, it’s detrimental to your financial well-being.
Some statistics say a renter’s net worth versus a homeowner's net worth is a discrepancy of 40 times. This translates to $8,000 versus $400,000—which is quite a gap. Even if the interest rate is a little bit high, that interest rate is temporary. We can refinance you and get that rate down as soon as possible, but the appreciation and wealth building is permanent. You're going to have that forever.
Your Net Worth
How does owning your own home help increase your net worth? As the loan on your home is being paid down, your property value is going to go up. If you rent, you’ll have to pay money every month—but rent prices increase 6% every year. On the other hand, your fixed-rate mortgage is never going to increase.
As your property value goes up and your loan goes down, the difference is your home equity. You get both the appreciation and the amount you're paying down on your loan, instead of just paying it to rent. This amortization gain is a really powerful tool.
We’re Here To Help
I hope this gave you a good idea of where the market is headed. Nobody has a crystal ball, and we can't say for certain what the future holds. However, we do know that there are many indicators from our past that give us a good idea of where we're heading in the future. If you have the right team of professionals in your corner, it gets a little easier to make educated decisions.
So go ahead and hit us up by email or phone and we’ll be happy to help. You can ask as many questions as you need to feel confident and comfortable in your decision-making process. Brett and I are both licensed in Wyoming and Colorado, so we can help you on either side of the state line.
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