I was talking to an older friend the other day about real estate. “You know home values are going to go down again because interest rates are going up,” she said. People seem to worry about “home values” when thinking about their home as an investment. They worry about “home prices” when they want to buy. The problem is, most people have to buy after they sell. I asked my friend if the value of her home went down in the 1980s when interest rates kept escalating. It dawned on her that she steadily gained home equity in the ’80s and ’90s. According to a recent article by CNBC, home prices have been climbing but inventory is low. Some of my friends are selling their homes now because they are being snapped up by investors or first-time buyers who can qualify for loans. According to CNBC, the median price for a single-family home went from $171,100 to $188,900 from 2013 to 2014, which represents a 10.4 increase. Meanwhile, mortgage rates jumped from about 3.5 to 4.5 percent.
Predicting future home prices
I think it’s important to have different housing options since the economy is unpredictable. According to an article by Bankrate, mortgage rates can indirectly affect home sales, but home prices have to do more with supply and demand as opposed to interest rates. When interest rates go up, home prices tend to rise because of a more robust economy. Those who can’t afford a bigger mortgage payment, simply rent or purchase smaller or less luxurious homes. I’m not selling my home now because it will be an asset in the future if home prices escalate.
Making a costly lateral move
If we sold our home, we’d be trading our 2.75 percent interest rate for a higher mortgage rate. What’s more, our current home value is just about exactly what we purchased it for in 2005. Although it’s great to no longer be upside down on our mortgage, we would only be making a lateral move if we moved. We’d still have to pay closing and moving costs as well as the hidden costs such as decorating, landscaping and new furniture associated with a new home purchase.
Escaping the real estate trap
I see most of my friends and neighbors getting caught up in the real estate trap. They are now getting sick of their new homes they purchased about 10 years ago. Instead of paying off their homes with 15 year mortgages, they are moving to “better neighborhoods” and taking out new 30 year mortgages to start the clock all over again. Although I may not be able to pay off my mortgage in 15 years, I am trying to get close to that goal. After I own my home outright, I will have the option of renting it out in the future if I decide to move.
Even though I’d love to upgrade to a nicer home, I can see too many advantages to paying off my home within the next 10 years. If I purchase another home in the future, it will be a second home since I don’t ever plan to sell the house I live in right now. The housing crash and its aftermath taught me that homeowners are always in a better position as long as they buy what they can truly afford.
More from this contributor:
Buying Real Estate Like my Grandparents
Why Rich People Feel Hated, But I Don’t
We Didn’t Stretch to Buy a Home