Here are some reasons why you may want to reconsider.
Stop reading the headlines and listening to the advertisements trying to scare you into believing that rates are going to go to 8.5%+. The reality is that we likely have already seen the top in mortgage rates and I expect that this time next year (or sooner) we will see rates with a 5 handle. Yes I said it....rates are going to go down into the 5's within the next 12 months. But you ask, "Trent, how can this be? The news says that rates are going up. The news says that the real estate market is going to crash like in 2008. Won't I be better off to wait until prices (and rates) come down before I buy?" My Answer is "No!"
Yes, the Fed is going to continue to raise the Federal Funds Rate from the current 3.75-4.0% to likely 5% range. But mortgage rates do not follow the Fed Funds rate, they follow the 10 year Treasury rate. The 10 year Treasury rate is currently at approximately 3.53% down from a high of 4.23 in Oct. Last week Fed Chairman Powell's comments gave the market some good news. He stated that they do not want to raise rates too aggressively, because they do not want to have to cut rates faster. Because that is what the Fed does...they raise rates (in this case in response to high inflation figures) and then come in and cut rates in response to a slowdown in the economy, which they created by raising rates too far. But these comments from Powell were good news to the market, because it signaled that the rate hike from their December 13-14 meeting will likely be 50 basis points rather than the 75 basis points we have seen in recent months. Now the Chairman did not come out and say this, but that was the market interpretation. What this signals to the market is that they are nearing the end of their rate hike cycle. This corresponds to the fact that the CPI data has come in less hot and all of the trend lines are starting to come in weaker in terms of inflation. The Fed, however, will not pivot until we see the jobless claims increase (likely north of 300k). Which, this spike in jobless claims would signal the last red flag that indicates recession. All other indicators (such as inverted yield curve and 2 quarters of negative GDP etc) have already sent the recession signal, but until unemployment coincides, through the jobless claim data, then we likely will not see the Fed fold.
So what does all this gibberish mean for mortgage rates and the housing market? I think there is an approximate 6-8 month window for buyers currently. And yes, I am talking buying now while the rates are still in the 6%'s. The reasons are:
When rates drop we will see a spike in mortgage applications (ie increased demand). Rates are currently inflated based on the historic spread between the 30 year fixed rate and the 10 year treasury. Since 2011 this average spread has been in the 1-2% range (consider 1.75% about standard). Currently we are north of 2.85% and just recently down from over 3%. What this means is that there is room for the rates to drop down into the 5 handle overnight. I will not go into why this spread has increased for now (which a lot has to do with the Fed stepping out of the MBS market), but just understand that once the market begins to normalize this spread itself will revert towards the norm.
Inventory levels are still extremely low. Yes, they may be up a high percentage from a year ago or early this year, but historically they are still very low. While some of this low inventory is seasonal as well as the fact that some sellers are waiting due to lack of demand, this still would not result in an inventory level that would become a point of causing a market crash. Equity is at one of the highest levels and with many locked into rates in the 2's and 3's, there is not going to be a rush to sell. Also, the long talked about glut of inventory due to the retirement of baby boomers is not happening as majority would rather age in place.
Though the current market isn't considered a buyer's market, it is much more buyer friendly than in the recent past. What this means is that in many instances a buyer can get selling concessions including covering closing costs or rate buydowns. Thus, in most cases, it will cost less out of pocket to purchase a house than it was last year.
With less competition you will not be settling on a house just because you think you need to buy something. Now there is more opportunity to find and get the house you truly desire.
Rates will come down in the next 12-24 months (my prediction) and then you can refinance to a better rate and payment.
If you wait until rates and/or prices come down then I believe you will be competing with all the others looking to do the same, which will put you in a place of little leverage, likely higher rather than lower prices and more out of pocket contribution.
Just my 2 cents!
Trent
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