Tuesday, January 6, 2015

Should the Prospect of Higher Interest Rates Make You Buy Now?

My Facebook and LinkedIn home pages have been rained on the last few weeks by (mostly) real estate agents trumpeting the demise of super-low mortgage rates and exhorting people with yet another ruse to Buy Now Before It's Too Late.

Seriously.

Should the prospect of higher rates make you buy right away--sooner than you'd planned? Mmmm, nope.

The pitchmen will tell you that if rates rise by X percent, then your mortgage payment will go up by Y dollars. That's arithmetic, right?

It's also a statement that ignores the existence of objective truth. It assumes house prices stay constant, when, in fact, it's a buyer's lender-approved monthly payment that stays constant. If interest rates increase, then housing prices will probably decrease. That's more than mere math. It's the way any market works.

In order for a buyer to be forced into paying more if rates go up, the buyer's lender would have to approve him for a higher loan amount. That won't happen, unless the buyer gets a big, fat raise when he decides to go house hunting.

Bond traders have always understood that when interest rates go up, the bond prices goes down. But then, they usually have finance degrees or even MBAs.

But the assertion that buyers will pay more per month if interest rates rise is an example of where we take issue with the real estate profession. It's an example of bullshit. Unlike an out right lie, where objective truth is acknowledged. bullshit ignores the existence of objective truth, It's far more nefarious.

When it comes to real estate, all too many in the trade continually insist that "now is a great time to buy a house," no matter when, or that you should "buy now before it's too late." Sometimes, they do both.

And by the way, here's Zillow predicting home price moderation in 2015, along with HousingWire citing several sources and coming to the same conclusion.

 If you want to buy a house, 2015 is as good a time as any. Maybe rates will be a bit higher, but you can probably make a better deal anyway. What matters is why you're buying--your needs, your goals, and so on.

What doesn't matter is the hype. Don't buy it.