Which is more important for buyers – the interest rate or the home price?
Experts project that interest rates will go down as 2023 progresses but home prices are anticipated to continue rising. How will this affect buyers’ monthly mortgage payments? And should buyers buy now or wait?
What are the Interest Rates Today?
Interest rates are definitely a popular topic these days because we saw in the second half of last year how quickly mortgage rates skyrocketed.
The national average for a 30-year fixed-rate mortgage is 6.5%.
Source: Freddie Mac. As of March 2, 2023, the national average jumped up to 6.65 percent.
Where are Interest Rates Heading?
Buyers are nervously watching rates climb and wondering if rates are going to continue to go up or if they are going to go down. The experts are saying rates will go down.
Freddie Mac projects rates will go down to 6.2% by the end of the year. Fannie Mae thinks it will be even lower by the 4th quarter to 6%, and the Mortgage Bankers Association is even more optimistic and projects we’ll be at 5.2% by year’s end.
If interest rates will be lower at the end of the year, should buyers wait until then to buy a home?
Spoiler alert: probably not but let’s look at the impact interest rates have on home prices.
In 2022, interest rates doubled and went from 3.2% to 6.4 percent.
The higher interest rate put many buyers on hold and demand decreased. This caused home prices in Olympia to flatten out in August and prices hovered around $493,000 for four months. Prices have since bumped up to $500,000 in December and January.
In a typical market, when interest rates go up, home prices go down. The reason why home prices in our area did not plummet was because inventory levels were low and are still low. Buyer demand is fairly strong, which is keeping home prices afloat.
If you are waiting for rates to come down, you won’t be the only one. You’ll have lots of company. More buyers will jump back into the market with lower rates. With this combination of low inventory and more buyers, competition will increase and that will push up home prices, and this is not an ideal scenario for buyers, either.
The projection is home prices in the Olympia area will continue to go up this year at a modest rate of 4% to 5% versus the double-digit gains we were seeing last year.
Which is more important – the interest rate you can get or the home price you can negotiate?
Taking the national average interest rate for a 30-year mortgage of 6.5% with Olympia’s current median sales price of $500,000 and a buyer putting down 10%, the monthly principal and interest payment is $2,844.
If we then plug in the numbers of where home prices and interest rates are projected to be at the end of the year, the monthly principal and interest payment is only $11 less. And don’t forget that you will have a larger cash down payment and a higher loan amount.
Is it Worth Waiting to Buy?
I don’t think so.
We all know a lot can happen between now and the end of the year. There are many, many influences that can affect the market that we haven’t even touched on like the job market, inflation, fiscal policies, national income, economic growth rate, international trade, consumer spending, consumer debt, etc.
These projections are just that and we don’t know what is going to happen. This is why timing the market is very difficult when buying or selling a home. Nearly all buyers and sellers are making a move because of a lifestyle change, not necessarily because of a market shift. But if you are intentionally waiting for a big shift in the market to your favor, it may not happen or it may not be the payoff you are hoping for.
My recommendation is if you are looking to buy, prepare now so that you are ready when the right opportunity comes up. This means having your finances in order, talking with a local lender, and getting acquainted with the local market.
Our Olympia real estate market is still moving fast and you’ll need to make big decisions in a short amount of time. Preparing is your best bet for finding success.
If you are thinking of making a move, contact me today and let’s discuss your home-buying goals!
VIDEO: Interest Rates or Home Prices – Crunching the Numbers
Unless otherwise noted, statistics compiled by Coldwell Banker Evergreen Olympic Realty and/or Francine Viola from NWMLS data. Statistics not published or compiled by NWMLS. Unless otherwise noted, statistics based on our own proprietary market study. Information and statistics derived from NWMLS.