In late February, homebuyers got a bit of a reprieve when mortgage rates finally fell below 6% for the first time in years. But in the wake of tensions overseas, mortgage rates have climbed.
For the week ending on April 19, the average 30-year mortgage rate was nearly 6.32%, according to Zillow data provided to U.S. News. And there’s a good chance mortgage rates will stay elevated until the Iran conflict settles down.
Seeing mortgage rates climb is discouraging, especially at a time when home prices continue to rise. In March, the median existing-home sale price was $408,800, according to the National Association of Realtors. That marks a 1.4% increase from a year prior and the 33rd consecutive month of annual price increases.
Not being able to offset higher home prices with more affordable borrowing rates deals buyers a tough blow. But that doesn’t mean you should write off buying a home today. Here are a few reasons it could pay to enter the market, despite mortgage rates getting stuck well above 6% once again.
[READ: Compare Current Mortgage Rates]
1. Higher Mortgage Rates Can Mean Less Competition
While higher mortgage rates can make borrowing more costly in the near term, they can also potentially lead to lower home prices. That’s because higher rates are scaring buyers away, giving remaining buyers an advantage.
As Jake Kennedy, Realtor at Jake Sells Nashville — Compass, says: “Higher mortgage rates don’t automatically make it a bad time to buy. In fact, they often create conditions that can actually work in a buyer’s favor. When rates rise, a portion of buyers take a step back from the market, which usually means less competition.”
Kennedy says that because higher rates are keeping many buyers out of the market, there are fewer bidding wars, which are notorious for driving home prices up.
Deborah Pisaro, owner at real estate brokerage Coastline 840, agrees that fewer bidding wars are a big plus in today’s market.
“The competition has self-selected out,” says Pisaro, who has 24 years of real estate experience. “Buyers who are scared away tend to be the ones making emotional decisions rather than strategic ones. The buyers who remain are serious, qualified and often more experienced. That’s actually a healthier buying environment. You’re not getting into a war with someone who waived inspection and offered $200,000 over asking on a two-hour tour.”
Pisaro says that while she’s still seeing some bidding wars, she’s not seeing a ton. But part of that is because, as she puts it, “we have a supply problem.”
In March, there was only a 4.1-month supply of unsold homes, according to the NAR. That’s well below the five- to six-month supply that’s typically needed to balance the housing market.
[Read: Best FHA Loans.]
2. Higher Mortgage Rates Could Pave the Way to More Negotiation
Because higher mortgage rates are driving buyers away, homes are generally taking longer to sell. Realtor.com reports that in March, homes spent an average of 57 days on the market.
That means homes are taking four days longer to sell, on average, than they did a year ago.
March also marked the 24th consecutive month of homes taking longer to sell on an annual basis. All of this, however, can be a plus for buyers.
As Pisaro explains, “The days on market discomfort is negotiating leverage, not just on price, but on terms–seller-paid rate buydowns, closing cost credits, repair concessions. In a frenzied market, those conversations don’t happen. Right now, they do.”
Kennedy is also seeing that sellers are more willing to bend.
“Right now there are more price adjustments and concessions from sellers than we (saw) when rates were at historic lows,” he says.
Of course, it’s not just that homes are taking longer to sell. There’s also an abundance of sellers compared with buyers. Redfin reports in February that there were an estimated 44% more home sellers than buyers at the start of the year.
[See: Best Mortgage Lenders for First-Time Homebuyers]
3. You Can Always Refinance Once Rates Drop
You may not love the idea of paying well over 6% on a mortgage. But there’s no reason to assume you’ll be locked into that rate forever.
“I tend to look at it this way,” Kennedy says. “You can always refinance a rate after they drop, but you can’t renegotiate the price you paid for a house. If you can afford to buy with today’s rates and you find the right house, it can make sense to move forward and revisit the financing later if rates improve.”
That said, Kennedy cautions, “If today’s rates stretch your budget too much, that’s an important reality that shouldn’t be ignored. There’s nothing wrong with waiting a beat if that’s what you need to do.”
It’s a Better Market for Buyers All Around
All told, market conditions are favoring buyers despite mortgage rates being up. If you’ve run the numbers and figured out how much house you can afford, and there’s a home on the market that meets your needs, then it could pay to make an offer, provided you can swing it.
“Today’s market lets (buyers) buy like adults,” Pisaro says. “They have time to think, room to negotiate and the ability to protect themselves. That’s worth a lot, even if the monthly payment is a bit higher than they’d like.”
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Mortgage Rates Are Up Again. 3 Reasons You Should Buy a Home Anyway originally appeared on usnews.com
