Is it a good time to buy a home with interest rates so low?

Rarely have interest rates on home mortgages been lower. The average interest rate for a 30-year loan has been around 3%, and the rate for a 15-year loan has approached 2.5%. Because of the drop-in interest rates, the price of houses has actually gone up in spite of the uncertainty that’s accompanied by the COVID-19 pandemic. Fewer houses have been on the market, and this has contributed to higher prices.

Those who were already looking to buy a home might want to pull the trigger now. It’s unlikely that rates will go down much from the current levels. However, it’s quite possible that the current interest rates could increase in the future. Every $100,000 borrowed at a 3% rate on a 30-year mortgage will cost $421 per month. If the interest rate goes up just 1%, this payment would increase by $56 per month. It’s estimated that the median home price is approaching $250,000, and some hot zip codes are well above this average. With 20% down, purchasing now would save more than $100 per month if the rate goes up just 1%. Additionally, home prices tend to go up over time. Therefore, it’s possible that you’d wind up with a higher cost if you wait.

However, the uncertainty that comes with the coronavirus might be a good reason to hesitate. It’s currently unclear how long a recession might last. If a recession leads to a high level of foreclosures, home prices could drop from where they currently are, providing a better entry point. Interest rates are likely to stay low in a prolonged downturn under these conditions. However, if your job is relatively secure, it might be a good idea to lock in a mortgage today to avoid a scenario where prices and rates increase over the short run.

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