Andrew Wetzel's Musings

March 20, 2019

Rates are LOW; It’s a Great Time to Buy?

Filed under: Buying,Hiring an agent,Price — awetzel @ 5:15 PM

I have been a REALTOR for over 20 years and wonder how many others are tired of being told “it’s a great time to buy”, “rates are low”!  They have been relatively low for so long that it is hard to imagine anyone really fearing a drastic rise.  Look at any amortization table to see how much it really costs you when rates rise!  You will be surprised.

Two thoughts.  First and more important, buying Real Estate is a MAJOR “life event” that should only be undertaken when there is a total commitment behind it.  Whether it is a residence or an investment property, make a logical rather than an emotional decision.  Buying simply because rates are low is as questionable as buying a year’s supply of paper towels or toilet paper because the “price was right”.  Frankly houses will ALWAYS come on the market so, unless you have really found THE ONE, make an informed decision before leaping.  That does NOT mean to delay for the sake of delaying: if you are “ready, willing and able”, delaying making an offer WILL allow someone else to swoop in.  On the other hand, the result of a poor decision can be quite serious so make a thoughtful decision based on more that the interest rate.

Second, while interest rates may rise and fall, SO DO ASKING PRICES!  While perhaps not completely “elastic”, meaning that pricing is not exactly inversely tied to interest rates, there is a relationship.  High interest rates tend to depress activity, especially at lower price points, which in turn impacts “moving up” which many fund by releasing home equity, which in turn can suppress prices.  With higher interest rates houses may actually be more affordable in the long run while lower interest rates can create activity leading to competition and higher prices.

First, my former broker said that the best time to buy during his career was when interest rates soared into the “upper teens”.  Sounds stupid, doesn’t it?  His thinking made PERFECT sense: you bought lower-priced houses at very high interest rates BUT COULD LATER REFINANCE TO A LOWER RATE!  Sounds like the “best of both worlds” to me!  Second, when the market was going crazy around 2003 or so I was working with a man planning to get married and looking for his first home.  Low interest rates compelled him to start looking.  Unfortunately, we were not able to find the “right house” so he kept looking and time passed.  Interest rates continued to fall which seemed good BUT the increased market activity caused prices to climb fast which obviously benefitted sellers.

One day I showed him a house that he seemed to like. We got separated during the showing and I found him on the front sidewalk just staring at the house.  I approached him and asked what he was thinking.  I have never forgotten what he said.  He told me that he had actually started looking before rates dropped and saw an opportunity to save money when they fell rapidly. However, because he had not found a house he liked enough to make an offer, the asking and selling prices ROSE rapidly. The net result was that his expected monthly payment had risen to what he expected to pay months earlier except that, with low interest rates and high asking prices, he did not anticipate being able to refinance the interest rate so he would be stuck with a high principal balance throughout the term of the loan.

There is no time for inexperience, empty promises or false expectations!

Remember:  HIRE WISELY!  We are not all the same!

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