4 Benefits to Buying a House When Interest Rates are Still High

When it comes to purchasing a home, the prevailing wisdom has often been to wait for lower interest rates. After all, lower rates mean lower monthly mortgage payments, right? While that may be true, there are significant advantages to buying a house when interest rates are still high. In this article, we'll explore four key benefits of buying a home in a high-interest rate environment, along with an additional benefit that might surprise you.

Benefit #1: Lower Housing Prices - in Some Markets

Traditionally, higher interest rates tend to have two effects on the housing market, and both can work in favor of prospective buyers. First, higher rates can deter some buyers from entering the market, reducing competition and putting downward pressure on prices. Second, they can lead some sellers to hold onto their homes to maintain their lower locked-in interest rates, limiting housing inventory.

While housing prices did experience a modest decrease at the beginning of the year, they have since rebounded in Snohomish County. This is primarily due to limited housing inventory caused by sellers holding onto their properties and supply chain issues affecting new construction.

However, not all regions have seen price increases. Seven states and two regions, including Washington, have witnessed price declines. This means that in some areas, buyers may still have opportunities to negotiate better prices, even with higher interest rates.

Benefit #2: Less Buyer Risk

In recent years, especially in 2020-2021, it was unquestionably a seller's market. With limited housing inventory and high demand, desirable homes often received multiple offers, frequently exceeding the listing price. In such situations, many buyers chose to waive certain contingencies to make their offers more appealing to sellers.

Two essential contingencies that buyers often waived were the inspection and appraisal contingencies. Unfortunately, this put buyers at risk of purchasing homes with hidden problems or paying more than a property's true value.

However, in a high-interest rate environment, there tend to be fewer buyers, and homes stay on the market longer. Consequently, inspection and appraisal contingencies are more commonly retained. This is a significant advantage for buyers.

The Inspection Contingency

Buying a home involves inherent risks. Homes are tangible assets subject to wear and tear, and unexpected issues can arise. In a normal market, buyers have the opportunity to inspect a property before finalizing the purchase. If they discover issues during the inspection that are unacceptable, they can back out of the contract.

Home inspections are crucial for understanding a property's condition, including the age and state of important structural and mechanical elements. Inspectors can identify potential problems such as roof issues, HVAC system malfunctions, or foundation cracks that could jeopardize the home's stability. While inspection results typically don't lead to price renegotiations, they could serve this purpose if significant problems are uncovered.

The Appraisal Contingency

During the peak of the seller's market, bidding wars often resulted in homes selling for prices higher than the appraised value. This presented challenges for buyers relying on mortgages, as lenders typically require a well-researched appraisal to ensure that the property's value justifies the loan amount.

Buyers had to bridge the gap between the offer price and the appraised value with additional cash, making it difficult for those without substantial reserves. However, in today's higher interest rate environment, while bidding wars still occur, buyers may have more time to assess their options and feel less pressure to take unnecessary risks.

Benefit #3: Building Equity Sooner

Buying a house can be both a financial investment and a place to establish roots. Purchasing a home in a high-interest rate environment allows you to start building equity immediately, even if it means slightly higher upfront costs.

It's important to remember that there's no guarantee interest rates will decrease anytime soon. If you have life plans, such as relocating for a better job opportunity or being closer to family, waiting might not make sense. Additionally, if you're renting, you've likely experienced rent increases, making homeownership an attractive alternative for building equity instead of paying higher rent.

Benefit #4: A Potentially Balanced Housing Market

While there are concerns about a housing market crash, experts suggest that the current situation may be more of a market correction than a crash. Housing inventory remains low, and demand from new buyers remains strong. Moreover, lending standards are stricter than during the 2008 financial crisis, providing more stability to the market.

Forecasts from the National Association of Realtors (NAR) suggest that existing home prices are expected to remain mostly steady, with some regions experiencing price reductions. This suggests that a high-interest rate environment might lead to a more balanced housing market.

Benefit #5: More Favorable Refinancing Opportunities

In addition to the four benefits outlined above, another advantage of buying a house when interest rates are high is the potential for more favorable refinancing opportunities down the road. While you may start with a higher interest rate when making your purchase, you can keep an eye on the market and refinance your mortgage when rates decrease.

If your income and credit score remain strong, refinancing can help you secure a lower interest rate and reduce your monthly mortgage payments. This flexibility allows you to adapt to changing market conditions and take advantage of lower rates without the need to move or incur significant closing costs associated with purchasing a new home.

In conclusion, while high interest rates may seem like a deterrent for prospective homebuyers, they offer several unique benefits. These benefits include potentially lower housing prices in certain markets, reduced buyer risk, the opportunity to build equity sooner, the potential for a balanced housing market, and the ability to secure more favorable refinancing terms in the future. By carefully weighing these advantages against the current market conditions, you can make an informed decision about when to buy your next home. Don't let high interest rates prevent you from achieving your homeownership goals; consider the broader picture and the potential long-term benefits of your investment.