A client asked me a few days ago, “Are interest rates going to go up? I am afraid I could lose my house”. Unfortunately, the 2008 financial crisis still feels very recent, but much misinformation exists. And my answer to him was, “Absolutely not! You are locked in with an amazing rate, and your monthly payment will continue to be the same for the entire 30 years of your loan!”. But let me explain a little more in-depth.
The 2008 financial crisis mainly happened because banks gave out home loans with very low initial “teaser” rates (some of them with even 0% interest for a few months) that would increase overnight to the set rate, which back then was also around 6% as it is now. With that specific example, if we put it into numbers, for a $750,000 loan, the initial payments were around $2,100 per month, and overnight they increased to $4,500 per month. This caused thousands of families to be forced to sell their homes or walk away, which in San Diego County turned into having 18,000 homes for sale simultaneously! To put it in perspective, we currently have about 2,795 homes for sale. So our inventory is waaaay way lower than then.
So, as a homeowner, how does it impact you if interest rates go up? If you have a fixed-rate loan, it doesn’t. At least not directly. Your monthly mortgage payment will be the same for the entirety of the loan (unless you refinance, of course…).
Can this cause home prices to go down? Indeed, the higher the interest rate, the lower the buyers’ acquisition power. But let’s remember that in the 1980s, we saw rates surpass 18%, and home prices stayed stable through it. And with less than 3,000 homes on the market right now, I am curious to know how that can happen in the short term.
Just a few days ago, I mentioned that I have been shopping with a client buyer for homes, and we have been in open houses that have had up to 60 people visiting in just one day. This means that 60 families are trying to buy a home in that neighborhood at that price range. And unfortunately, that neighborhood only has about three houses in that price range.
So buyers, I know it is scary to see how much the market and economy fluctuate, but once you find a property you can call home, you will be locked in the same monthly payment for the rest of the loan. In contrast, renters will continue to see rents go up (because, unfortunately, the first index to see an increase when inflation is up is rent).
I know this subject may be complicated, but as you can tell, I am passionate about it, so if you are interested in discussing it further, let’s grab coffee! It’s on me 😊
