I stopped an an open house today, I couldn't help myself. I saw the sign and it pointed to an area I am interested in so I followed the signs to a house WAY larger than anything I would ever consider. But I stopped just for the hell of it. I was greeted by a typical realtor who proceeded to tell me about the house (which was fine). Then he asked if I had an agent, and on and on. Then he let fly with the "there's never been a better time to buy". Ok, fight's on. I ask "how so?". Well the interest rates are at historic lows making payments more affordable than ever. I wasn't feeling much like arguing so I said "thank, but it was too big for me and left".
How do you feel about these low rates. The low rates are making homes more affordable than they have been in a long time. However the low rates are also helping to prop up home prices. People buy homes based on monthly payment, not total price. Most buyers will figure out what monthly payment they can afford and the current interest rate will allow them to calculate how much they can spend. Rates are currently very low compared to long term average rates. So, what happens if rates go up? People can't afford as much house. This puts pressure on prices. In a normal market demand dictates prices. If people cannot afford the payments at a higher interest rate, demand drops and prices will follow.
Assuming the monthly payment is the same, what's better, a low price with a high interest rate or a high price with a low interest rate? It should seem obvious but a lower price with a high rate is better for several reasons.
1) If rates drop you can refi. With the rates as low as they are now you can forget about a future refi to take advantage of rate drop.
2) A lower purchase price means lower property taxes. And who doesn't like lower taxes.
3) If you do buy when rates are low you face the possibility of a drop in value if rates spike. You could easily find yourself underwater, trapped in the house.
There are some other advantages of a high interest rate. A lower purchase price and a high interest rate it makes paying off the home early much more attractive. If you can pay extra towards the principal you can really cut down on the total cost of the home and pay it off early. Because much more of the monthly payment is interest the mortgage write off might be higher.
Are interest rates going to shoot up. I'm sure they are..... eventually. Personally I don't think they are going anywhere for a few years. The government will need to keep the rates low in order to keep the economy from totally tanking. Also inflation is still relatively low so there isn't much pressure to raise the rates. But 5 years from now things could be very different. So if you buy, buy something you will want to stay in for a while.