Even though mortgage rates dipped below 5% this past week, they’re still higher than they were just a few short months ago. This has priced some home buyers out of the market and caused others to take a wait-and-see approach, hoping for rates to drop back down to historically low levels.
It’s understandable why current buyers would want to hope and wait, but it’s impossible to say if rates will ever go back down to the 2% or 3% range, let alone soon. But if they do, it’s not likely to happen in the next few weeks or months, so the decision buyers have to make boils down to whether or not they’re willing to potentially wait years to buy a house.
That said, based on this Market Watch article, buyers could inadvertently be costing themselves more money by waiting for rates to come down. This is because the “real mortgage rate” has gone negative for the first time in 40 years, according to the chief economist at Angi (a home services company). Simply put, if mortgage rates are currently at 5%, and the inflation rate is at 9%, the real mortgage rate is -4%.
So while some buyers may decide not to buy because rates are “high” relative to where they were a while ago, they’re missing the opportunity to capitalize on the fact that inflation is currently making these rates a better deal.
Of course, this is due to inflation, and inflation isn’t forever. So as the inflation rate comes down, one could argue that having a mortgage at a higher rate (relative to where they were) is not ideal. Unfortunately, nobody can predict how long and at what rate inflation will be high. But it’s probably a safe bet that it’s not easing up in the next few weeks or months, and it could last years.
This doesn’t mean you should run out and buy a house just to take advantage of the current negative real mortgage rate, taking inflation into account. But it’s something to think about and worth crunching the numbers based on your own personal situation if you’ve been weighing whether or not to buy right now.
The Takeaway:
Mortgage rates are higher than they were a short time ago, but that doesn’t mean they aren’t a good deal. Due to inflation, the current mortgage rates are actually negative for the first time in 40 years. If you’ve been putting off buying a house hoping rates will come back down, you may be in for quite a wait, and during that time it could be costing you in ways that are hard to see or quantify without truly analyzing the pros and cons of waiting. Crunch the numbers and see how much sense it makes for you to buy now, based upon your personal situation.
