If you’re in the market for a new home or are considering up-sizing or down-sizing, you’re probably watching mortgage rates with particular interest.
Why? Because every tick up in mortgage rates means a higher monthly payment for you or the purchaser of your home.
“Let’s go to the videotape.”
Historically, mortgage (and interest) rates tend to rise when the economy is growing, the job market is vibrant and wages gains are prevalent. This allows people to feel comfortable saddling themselves with a larger mortgage.
Last time around (2005-2007), housing prices rose significantly for this period of time even though interest rates were on a steady climb throughout. When the economy turned for the worse, inflated housing prices came down significantly and mortgages could not be serviced properly, leading to the housing crisis of 2008.
Consumption, not investment.
Many clients ask me my thoughts about investing in their home. They hear about the hundreds of thousands of dollars of appreciation that others have seen.
Normally, this appreciation is over decades and when factoring in the real estate taxes, maintenance and unexpected expenses, the IRR (internal rate of return) is remarkable low. This does not include the money that is required to get your house “in shape” for sale and the commissions, fees and taxes you’ll pay on closing.
Does this mean one should not buy a home? Of course not.
I suggest to clients that they consider their homes consumption … something that they want to spend their money on and enjoy much like going on a trip or buying that car they always wanted.
Please call me at (610) 999-3599 if you’d like to discuss this in more detail.
Related article: 3 things to consider when refinancing to a 15 year mortgage