Why aren’t home prices dropping more despite high mortgage rates? In many areas, prices are even rising. This puzzling situation is partly explained by the “life goes on” home-buying cycle.
During the pandemic, numerous individuals paused major life decisions for a couple of years. Initially, buying a home seemed too uncertain amidst the chaos. As a result, many continued renting or staying in their current homes.
The pandemic also led to delays in key life events such as:
- Attending college
- Pursuing higher education
- Relocating for jobs
- Starting businesses
- Proposals and marriages
- Starting or expanding families
- Retiring
But life can’t be paused indefinitely. We all have limited time, and postponing our dreams and desires forever isn’t feasible.
Impatience with Waiting for Lower Mortgage Rates
Demand for homes plummeted in late 2022 and early 2023 as mortgage rates spiked. Despite a slight decline from their peak, mortgage rates remain high due to the ongoing gap between mortgage rates and Treasury bond yields. The Federal Reserve’s indications of further rate hikes add to this uncertainty.
People are growing tired of waiting for lower mortgage rates, leading to a buildup of demand. Once rates do drop, this pent-up demand is likely to cause a surge.
Choosing a Home Over Rates
The philosophy of “date the rate, marry the home” suggests that while mortgage rates are temporary, your home is permanent. Refinancing is always an option, but the initial purchase price is set. Missing out on a dream home could mean never having that chance again.
I generally agree with this, especially since mortgage rates have trended downward since the 1980s. Most interest rate hikes and inflation spikes are temporary. Adjustable-rate mortgages (ARMs) with fixed-rate introductory periods can offer savings. My personal experience since 2003 with ARMs has saved over $500,000 in interest.
A Cautionary Note
Yet, it’s worth noting that the “date the rate, marry the home” saying is also used by realtors to encourage transactions. It’s always wise to run the numbers yourself rather than being swayed by persuasive language.
With inflation declining, mortgage rates may fall in the next one to two years. If you can manage the higher initial payments, buying now could be a good decision.
Embracing Life’s Opportunities
At 46, I’m no longer willing to wait for things to happen. Whether it’s career moves, building wealth, or starting a family, taking proactive steps is essential. Biology doesn’t wait, and neither do opportunities like upgrading homes.
I’m currently considering an upgrade at a more reasonable price than in 2022. The seller’s circumstances mean they’ll occupy the home for two more years if not sold, demonstrating that life continues regardless. For my family, it’s a choice between seizing this opportunity now or potentially missing out.
Why People Buy Despite High Rates
A Zonda survey reveals various reasons people are buying homes even with high mortgage rates. These include limited resale supply, relocation, family changes, retirement, escaping rent, marriage, FOMO, divorce, opportunistic purchases, and death. Essentially, people are buying because life moves forward, regardless of mortgage rates.
