Interest Rates vs. Homeownership: The Resilience of Real Estate

For many prospective homebuyers, the allure of historically low interest rates, particularly the coveted 3% mark, is a dream that seems to have slipped through their fingers as we transition out of the pandemic era. These rates were indeed remarkable, but it’s important to understand that they were a response to the potential economic disaster that could have been triggered by COVID-19. While we long for those rates to return, it’s possible that we won’t see rates like that again in our lifetimes. However, all is not lost! The rates we’re encountering today are influenced by a different force – inflation. In this article, we’ll explore that even though higher rates impact affordability, they may not alter the core benefits of owning a home. And real estate has historically been one of the best hedges against inflation.

Real Estate as an Inflation Hedge

Inflation has been a hot topic recently, and it’s no surprise that it’s impacting various sectors of the economy, including the housing market. As the costs of land, lumber, and labor rise in response to inflation, the prices of new homes inevitably follow suit. It’s important to remember that homes, like other commodities, such as an ounce of gold, a barrel of oil, or a bushel of wheat, are influenced by market dynamics. As prices rise, each home sale sets a new benchmark value for those that follow. Interestingly, the faster rate of appreciation can sometimes balance out the impact of higher interest rates.

A Glimpse into Mortgage Rate History

To better understand the current mortgage rate landscape, it’s beneficial to reflect on the past. Over the last 50 years, rates on 30-year fixed-rate loans have seen significant fluctuations. They’ve soared as high as 18% and have averaged about 8%. Several factors traditionally help buyers adapt to the payments that come with their new homes. As your income grows, a fixed-rate principal and interest payment becomes a smaller portion of your paycheck. Moreover, the interest and taxes paid on your home may be deductible, reducing your overall tax burden. With each payment on a typical loan, you pay less in interest and contribute more towards the principal. This process reduces your loan balance and builds the equity in your home.

Over time, it’s common for property values to appreciate, further enhancing your equity. All of this equity-building can provide opportunities for various financial endeavors. Plus, if rates were to fall later, the option of refinancing could potentially lower your monthly payments and reduce the cost of interest.

The Wealth-Building Power of Homeownership

Homeownership isn’t just about having a place to call your own. It’s a substantial contributor to building wealth over time. A 2022 Federal Reserve study highlighted this fact by revealing that the average net worth of a homeowner is 40 times higher than that of renters. That’s a staggering statistic! This underscores the long-term financial advantages of owning a home.

Timing Matters Less Than Ownership

When we consider the history of mortgage rates and the housing market, it becomes clear that the timing of your home purchase is less critical than the act of homeownership itself. Whether you purchased your home during a period of high interest rates or low, owners have consistently built wealth over time.

Are You Ready for Today’s Market?

If you’re contemplating entering the housing market, you may be wondering whether this is the right time for you. The good news is that we’re here to help you navigate the current economic landscape. We offer many solutions for today’s interest rates, as well as low down payment options and various other ways to assist homebuyers.

With the assurance that real estate remains a robust investment even in times of shifting interest rates, now is a great time to take the next step. When you’re ready, our team of experienced loan officers will be ready to guide you on your journey toward homeownership. Get started today by applying online or contacting one of our knowledgeable loan officers via phone or email. We also offer a digital experience through our ReadyLoan® app, where you can securely apply, provide documents, communicate with us, follow the progress of your loan, and much more!