Home prices are +6.7% higher than they were at the end of 2017 and interest rates are higher than they’ve been in 7 years.
Why are people still buying houses?
Granted, the volume of sales has been decreasing all year but still, people are buying. Mark Fleming, the chief economist at First American, said, “The fact that interest rates are rising actually causes demand, particularly with first time buyers.”
Committed buyers want to lock in a mortgage rate and a price before both go higher. Sitting-on-the-fence buyers also perceive an urgency to buy as rates rise. They “…anticipate higher interest rates in the future so there’s an incentive to buy (in order to) lock in today’s known rate,” said Daniel Beckerman, founder of Beckerman Institutional.
According to the Housing and Mortgage Market Review from Arch Mortgage Insurance, interest rates are expected to increase throughout this year and into the next. Arch’s global chief economist, Ralph DeFranco, said, “Interest rates may not be this low again for decades.” Projected monthly payments to buy the same-priced home could jump 10-15% next year.
Beyond the realities of rising interest rates and home prices, homeownership continues to be a cornerstone of the American Dream. Gina Ko, an agent with Triplemint Real Estate, said, “…people always want to buy a home to start a family, build a legacy and move forward in their life.”
And, homeownership gets people out of the “rent race.” ATTOM Data Solutions’ Rental Affordability Report tells us that renting a three-bedroom home in 54% major markets is more expensive than owning a comparable three-bedroom home.
The Real House Price Index from First American tells us that home buying power is +14.3% since 2011. That Index also tells us that “real” home prices, when adjusted for changes in incomes and rates, are -32.5% lower than prices were during the peak of the housing boom.
However First American’s Real House Price Index sits with you and other research you’ve read, Sean Black, co-founder of Knock and founding team member of Trulia, said, “Home purchase decisions are often less financially motivated than personal preference driven.”