End of an Era?

Just as this week’s TGIF 2 Minutes goes to press, the news of the passing of Queen Elizabeth II, the longest reigning monarch in British history, is hitting the airwaves. God bless the royal family in their mourning of an amazing woman!

The “end of an era” closer to home is the end of 3% 30-year mortgage rates. Does this mean it is time to put off a home purchase? The simple answer is NO. The longer answer is, NO, IF. The “if” stands for:

Today’s 5%+ mortgage rates are more normal and reasonable in the longer-term picture than the media is making them out to be.

  • IF a buyer is OK with and can afford the mortgage payments
  • IF the buyer has at least 20% down (or more), avoiding PMI
  • IF purchasing a home within a stated budget or price limit
  • IF costs of property taxes, homeowner’s insurance and mortgage payments are within a stated budget or limit.

With these and other factors in place, consider that mortgage rates are still reasonable in the bigger picture. Sources say that the average 30-year mortgage rate since 1971 has just under 8%. It has been inevitable for more than several years that mortgage rates would need to go up. With such cheap and easy money, home prices have risen far above the level for middle- and lower-income buyers to afford even a “starter home”. For mobility of the middle- to upper-income buyers in the case of job changes, home prices have become beyond unpalatable, if not unaffordable.

In addition, cheap money has given rise to investor purchases of homes creating out-of-control rental rates. Higher mortgage rates could cool that trend. The life blood of inflation is, by definition, low interest rates.

Mortgage rates are not going down any time soon. If a home purchase, either upsize or downsize, has been in the plans today’s 5%+ mortgage rates are more normal and reasonable in the longer-term picture than the media is making them out to be.

Thank you for reading, enjoy the last weeks of summer and TGIF!

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