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Opinion: Historic rates, seller's market create homebuying dilemma

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There’s been a lot of attention on where the stock market could be headed in this post-COVID-19 world, but far less focus has been on the housing market. With rates near historic lows and more demand than inventory, it’s certainly fair to ask if now is the right time to buy a house.

In 417-land, house prices have held steady or even risen slightly since the economic shutdown in early spring. This stability, coupled with incredibly low interest rates, are solid reasons to consider a new home purchase.

On the other hand, employment concerns persist, though our area hasn’t felt the pinch that other regions across the United States have felt. Many homes that would have hit the market have withdrawn, making inventory tighter.

With a clear seller’s market out there, what should you do?

Here are some things to consider while weighing your options.

Buy now
Locking in an interest rate on a fixed mortgage that’s nearly the lowest in history can be incentive enough to buy now. For instance, one year ago a 30-year fixed rate mortgage sat at 3.75%, according to Freddie Mac. That’s a great rate for sure.

But on Aug. 1, the same loan program had a 2.99% rate.

Not counting any taxes or fees, a $300,000 home loan a year ago would give you a monthly payment of $1,389. But at 2.99%, that same loan would have a $1,263 monthly payment. That’s a savings of more than $125 a month simply from a lower interest rate.

Another reason to buy now may be less obvious, but it’s currently very easy to sell the home you’re in right now.

If you haven’t checked the value of your home lately, you might be surprised to see it’s gone up – and with a lack of inventory on the market, selling your home could help you upgrade in a major way.

If you currently have a mortgage, this leads to one very important point: Get prequalified for your next home loan before you start looking to buy. Prequalification not only gives you a price range when you’re house shopping, but allows you to make offers far quicker and even compete with buyers who may be able to pay completely with cash.

Wait it out
If 2020 has proven anything, it’s that things are unpredictable. Timing when interest rates may be at their lowest – because yes, they can still go lower – or when housing inventory may improve is just a guess. There is no way to predict the perfect time to buy.

With trillions of dollars pumped into the economy by the federal government in the form of stimulus checks and the current round of Paycheck Protection Program loans coming to an end, it’s even harder to guess what will happen to the housing market. That’s the thing about unprecedented times – there’s no data to indicate which way the market may move.

Staying put isn’t a bad decision, even with rates so low and demand for your current home so high. That brings us to an alternative solution.

Take advantage of a refinance
Are you five years into your current mortgage? Your rate is probably north of 4% then. And if you locked in your rate 10 years ago, then it could be 5% or higher. If you don’t plan to sell your home anytime soon, then it’d be fiscally wise to consider refinancing your current mortgage.

Refinancing now can clearly save you money on your monthly mortgage payments, but it can also help you trim years off your loan.

Consider a 15-year fixed-rate mortgage, which has an even lower interest rate than a 30-year mortgage.

Your payment may be higher because the life of the loan is shorter, but the amount of interest you will save overall will be substantial.

While we can analyze the economic and financial factors that impact homebuying trends, the decision to buy a new home is usually a personal one.

Generally speaking, if you find the right house that fits your needs, now is an excellent time to buy.

But if the uncertainty concerns you, then it won’t take long for refinancing to pay off.

Tamra Dean is a residential lender at Guaranty Bank. She can be reached at tdean@gbankmo.com.

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