As Mortgage Rates Rise, Is Renting Better Than Buying?
Should prospective first-time home buyers just sign another apartment lease this autumn and forget about the dream of homeownership?
While mortgage rates declined slightly on October 6th, the long-term forecast is for higher interest charges for the balance of this year and into 2023 as the Federal Reserve Board continues to tighten its vice grip on inflation.
Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed home loans inched slightly lower to 6.66% on October 6th from 6.70% a week earlier. A year ago, 30-year fixed rates were at a bargain basement 2.99%.
“Mortgage rates decreased slightly last week due to ongoing economic uncertainty,” said Sam Khater, Freddie Mac’s chief economist. “However, rates remain quite high compared to just one year ago, meaning housing continues to be more expensive for potential home buyers.”
Fifteen-year fixed-rate mortgages averaged 5.90% on October 6th, down from 5.96% a week earlier. A year ago, the 15-year fixed loan averaged 2.23%.
The Freddie Mac survey is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit.
November Fed rate hike?
The next Fed funds rate-hike meeting is scheduled for November 2, followed by a year-end meeting on December 14. Forecasters envision another 0.75 basis-point hike on November 2. Should that occur, that would take short-term rates over the symbolically important level of 3% and spark a recession. On December 14, a year-end rate hike of 0.25 basis-point is forecasted.
What all this Fed action means is prospective home buyers likely will see 30-year mortgage rates rise to 7% or more by November.
Fall home buying outlook
Despite the threat of higher mortgage rates, there are several key advantages of buying a home in the fall, according to veteran broker Tripti Kasal, senior vice president of sales at Chicago-based Baird & Warner.
“Buyers face steeper competition in the summer due to favorable weather and families with children trying to time their moves to not coincide with the school year. By the time classes are underway in the fall, fewer families are actively looking to move,” Kasal said.
Weather conditions still tend to be favorable for touring properties and moving in the fall, and the inventory of homes at this time of year is generally higher than what buyers will experience heading into the winter, Kasal said.
“Home buyers may be able to find better deals in the fall, depending on the market,” Kasal said. “Sellers that didn’t find buyers during the busy summer months are often more inclined to lower their asking prices and make deals by the time autumn rolls around—especially if they want to avoid moving as winter weather (and the holidays) arrive.”
Because the autumn market tends to have a lower overall volume of sales compared to the spring and summer, Kasal noted that buyers can benefit from more personalized attention from real estate agents, attorneys, title companies and home inspectors.
This likely would lead to a better shopping experience as well as quicker and smoother closings.
“Buyers who purchase in the fall can also take advantage of relatively lower demand for contractors and movers and find better deals when it comes to repairs and moving costs,” Kasal said.
Home improvements are more affordable—and likely to be completed quicker—in the fall than in the summer when contractors are in the highest demand.
“Both sellers and buyers may see tax benefits by making a deal in the fall. Property tax and mortgage interest paid at closing can be deducted from your income for the year, even if you closed on the home late in the year,” Kasal said.
“For some buyers, these deductions can significantly affect the year’s tax liability. However, we always recommend a buyer contact a tax professional to see how these may impact their tax situation.”