The path to homeownership has always been influenced by a multitude of factors, but few are as significant as the ebb and flow of interest rates. For many, the rise and fall of these rates can mean the difference between securing a dream home or having to put that milestone on hold.

In this blog, we’ll dissect the weight of interest rates on the real estate market, including an analysis of where the market stands today and tips for prospective homebuyers.

The Ebb & Flow

Throughout history, we’ve observed a dance, where as interest rates rise, home purchases decline, and as they fall, the market booms. The Great Recession, for instance, painted a clear picture of this: with rates plummeting to stimulate spending, the housing market saw a vigorous recovery.

Beyond crises, underpinning this dynamic are the Federal Reserve’s monetary policies. By tweaking the Federal Funds Rate, the Fed can effectively encourage or discourage borrowing, building a direct highway to the housing market.

Understanding the Housing Market in 2024

When interest rates began steadily rising in 2023, many economists believed home prices would fall – and they did, but only for a short time. In a highly inflated market to begin with, the lowest point only marked a 6.8% decline before rebounding to new highs in Q4 of 2023 and into 2024. As of February 26, the average 30-year fixed rate was 7.57%.

In the last decade, the path to homeownership has become increasingly difficult for millennials and Gen Z, who are entering a crowded market (among older generations who can cash-in on the value of existing homes) and inflated home prices without the income to match. From Q4 2019 to Q4 2023, the average sale price of U.S. homes increased 28%, from $384,600 to $492,300.

In fact, homebuyers need to make $115,000/year to afford the typical U.S. home, according to a 2023 study from Redfin. This marks a 15% increase from 2022, and more than a 50% increase since the start of the pandemic. Compare that to the average median household income: $74,580.

The difficulty of securing a home isn’t limited geographically to large metropolitan areas. A recent study scored U.S. cities on how easy it was for members of Gen Z to purchase a home, based on a number of compounding factors, and Richmond, Virginia, topped the hardest list.

Joining the Dance: Tips for First-Time Homebuyers

Given the rise of interest rates and the average sale price, first-time homebuyers need to approach their house hunt with diligence and strategy. Here are some tips for a smoother, more informed process:

1. Secure Pre-Approval: Before setting foot in the market, begin with the certainty of pre-approval. This step not only sharpens your focus but also positions you as a serious buyer in the eyes of sellers and lenders.

1. Research Loan Options: Stuck choosing between fixed-rate or adjustable-rate mortgages (ARMs)? The variety of loan options can be overwhelming. When interest rates are at their lowest, you may consider a fixed-rate to guarantee the best deal over the long haul. However, if you plan to pay off your mortgage sooner rather than later, you may want to take advantage of even lower introductory rates offered by ARMs. Understanding your current financial situation, and how it may change in the future, is critical in making the most educated decision.

1. Consult a Professional: A real estate agent and a mortgage broker can be profound allies in your home buying quest. Lean on their expertise to understand the market and secure the best deal.

1. Calculate the Total Picture: Mortgages encompass more than just principal and interest. Don’t forget to factor in property taxes, home insurance and possible homeowner association fees in your calculations as well.

1. Be Patient and Persistent: The perfect home might not come with your first offer, or your second. Keep going!

Eyeing the Future

The future, as it pertains to interest rates, is shrouded in the complexities of economic recovery. Forecasts often node to the inevitable: as the economy mends, rates will rise. But the speed and trajectory of this ascent are largely speculative.

Whether you’re actively searching for your first home, considering an investment or content in your current situation, the ability to predict and prepare for these shifts is paramount. Homeownership, after all, isn’t just a financial venture; it’s a fundamental aspect of our lives, family’s lives and communities.

While the fluctuating nature of interest rates might be confusing or difficult to navigate with certainty, moving doesn’t have to be. Hilldrup offers a variety of customizable moving and storage solutions to meet your needs. Contact us today for a free quote!

George Roth Author