For many people, homeownership is the peak of financial success.
It represents stability, security, and the culmination of years of hard work and financial planning. Owning a home is a major life milestone, offering a sense of permanence and belonging.
But beyond its emotional significance, homeownership is also considered a cornerstone of building wealth, as real estate typically appreciates in value over time, creating opportunities for financial growth.
That said, buying a house is also one of the scariest things you’ll ever do. It’s a HUGE financial investment and a decision you’ll have to live with for years to come.
It’s not a decision to make lightly, so let’s take a look at the current state of the economy to answer the question, "Is now a bad time to buy a house?"
Why are mortgage rates rising?
For the past few years, the Fed has been steadily raising interest rates to combat inflation.
As a result, the average interest rates on most types of loans have risen, including student loans, car loans, and mortgages.
However, since September, the Fed has been lowering interest rates…and yet, counter-intuitively, mortgage rates are still climbing.
The reason why is that mortgage rates are more closely tied to 10-year U.S. Treasury Bonds than to the Fed’s benchmark interest rate
Those Treasury yields have been hovering around 4.6%, up from about 3.6% in September when the Fed started lowering interest rates.
Investors who buy and sell Treasury bonds influence those yields. They appear to have risen in recent months as investors have gotten worried about the inflationary impact of President Donald Trump’s proposed policies, experts said.
Why it matters…
Not all debt is equal. There’s a difference between “good debt” and “bad debt.”
In general…
Bad debt is debt that is high-interest (meaning more than 7%) and doesn’t help you grow your net wealth. For example, going further into credit card debt to buy a new TV, which loses its value over time.
Good debt is debt that is low-interest and will build your net wealth long-term.
Normally, mortgages are considered good debt because real estate is an appreciating asset. However, because mortgage rates are so high right now, it pushes them into the realm of bad debt.
Economists predict that mortgage rates are unlikely to fall below 6% until 2026, which means that we might be looking at a year of high mortgage rates…potentially even 7% or higher.
Is this a bad time to buy a house?
As always, there’s no simple, straightforward answer to this question. It depends on your financial priorities and situation.
Because the mortgage rates are high, the real estate market is stagnant, meaning that sellers may be open to lower offers than they might otherwise entertain. Therefore, if you’re in a financial position to pay off the house quickly, it might be a good time to secure a better price on a house.
However, keep in mind that buying a house outright isn’t always the best option. Buying a house means spending $10,000s if not $100,000s that you might otherwise be investing in the stock market, which typically grows faster than the real estate market.
That said, you can always refinance your mortgage when rates come down. Unfortunately, there’s no way to predict how long that will take.
The safest option is to continue growing your money. High-yield savings accounts and CDs are still offering high returns thanks to elevated interest rates.
What to do if your mortgage is high
If you’re committing to a mortgage rate of 7% or more, then you’ll probably want to prioritize eliminating that debt.
The reason we define anything above 7% as high-interest is because the stock market typically offers returns of 8-10%, so if you’re paying above 7% interest on your debt, you’ll never be able to grow your money because you’ll always owe more than your money can make.
In other words, there’s no point in investing your money until you’ve eliminated high-interest debt.
If you’re looking for a debt paydown plan or tips for paying off debt, we have resources to help you do that!
Also, be sure to keep an eye on how mortgage rates change; when rates drop, you might want to consider refinancing for a lower rate.
Take control of your finances
The economy might be outside your control, but that means that it’s even more important than ever to focus on what you CAN control: your personal finances.
In our free masterclass, we’ll teach you the secrets to pain-free money management so you can make confident financial decisions no matter what’s happening in the world. Hope to see you there!
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