In 2021, my son and his wife thought they had hit the jackpot when they secured a 2.75% mortgage rate on their first home. Fast forward two years, and they are contemplating bidding farewell to that dream rate as they consider a move due to work commitments. Life, as they say, is full of surprises.
The Current Housing Dilemma
The current state of the housing market is less than ideal for millennials. The 30-year fixed rate has climbed to around 7.7%, and the median home price has soared past $412,000. Affordability hit a 38-year low in September, and the dream of homeownership is slipping away for many in that generation. Redfin reports that one in five millennials believes they will never own a home.
As a Real Estate Broker and Luxury Realtor, I understand the frustration and disappointment that many millennials are grappling with. However, I encourage you not to succumb to the belief that missing out on low mortgage rates is a permanent setback. Here’s some advice to help navigate the current challenges:
Reframe Your Mindset
The mindset of thinking, “If you don’t buy now, you’ll miss out forever,” is a common but misleading belief. Interest rates are simply out of your control, so fretting about them doesn’t really do you much good. It’s easy to second-guess yourself and dwell on what could have been, but it’s more productive to focus on what you can control. Consider the fact that you can always refinance when interest rates come down.
The Refinancing Opportunity
One silver lining in the current market is that you can always refinance when interest rates become more favorable. While the current rates may seem daunting, they are not set in stone. You can buy a home now and keep an eye on market trends, being prepared to take advantage of a refinancing opportunity when it arises. This flexibility allows you to adapt to changing economic conditions and potentially secure a more favorable mortgage rate in the future.
Paying Rent vs. Building Equity
It’s crucial to recognize that paying rent is essentially paying 100% interest – you are contributing to someone else’s mortgage. While renting provides flexibility, it doesn’t contribute to building equity or long-term wealth. Assess your financial situation and weigh the benefits of homeownership against the short-term convenience of renting. Investing in your own property allows you to build equity over time, providing a valuable asset for the future.
Take Your Time
If you didn’t buy during the era of low rates, don’t panic. There might be valid reasons for your decision, such as uncertainty about where you want to live or an inability to find the right space. Rushing into a major financial decision can lead to regret and long-term financial strain. Remember, patience often yields great dividends. Focus on your unique circumstances and avoid comparing yourself to others.
Use This Time to Prepare
Higher rates shouldn’t deter those who are determined to buy. Take advantage of this time to improve your credit, explore mortgage lenders, research neighborhoods, and define your homeownership goals. While regret may linger, it’s essential to incrementally better your position for when the right opportunity arises. Keep in mind that the housing market is dynamic, and being prepared puts you in a favorable position.
Look into Alternatives
While a 30-year mortgage is the most traditional option and often the go-to choice, it’s essential for homebuyers to broaden their horizons and explore alternative mortgage options. Consider alternatives such as five-year Adjustable Rate Mortgages (ARMs), which often come with lower introductory interest rates than conventional loans. People don’t live in houses for 30 years anymore, so sit down with your mortgage broker or banker and educate yourself on the diverse range of mortgages available in the market. By understanding the nuances of different mortgage options, you can tailor your choice to better align with your financial goals and lifestyle. In addition to exploring alternative loan structures, investigate grants and first-time homebuying programs that can alleviate some of the financial burdens associated with purchasing a home. These programs are designed to make the process more accessible and affordable, especially for those entering the housing market for the first time.
Higher rates should not deter you from pursuing homeownership. If you’re actively looking, don’t let market fluctuations paralyze your decision-making. No one can perfectly time the market, so focus on positioning yourself for success and be prepared to seize opportunities, including the chance to refinance when the time is right. Remember, there might not be a perfect time, but with careful consideration and a willingness to explore alternatives, you can make informed decisions that align with your financial goals.
In conclusion, while the current housing market may present challenges, it’s crucial for millennials not to lose hope. By reframing our mindset and focusing on what we can control, we can adapt to the new normal of homeownership and make informed decisions that align with our unique circumstances. Remember, the perfect time may not exist, but with patience and preparation, you can position yourself for success in any market.