Many potential homeowners feel apprehensive when considering buying a house in a climate of rising mortgage interest rates. Dave Ramsey, a seasoned voice in real estate and finance, sheds light on this topic, offering insights that challenge popular perceptions. Drawing from historical data, market trends, and the age-old debate of renting versus buying, this blog post delves into the intricacies of making a home purchase decision in the face of high interest rates. Whether you’re a first-time buyer or looking to invest, understanding the broader picture can empower you to make informed choices in any market condition.
Approximately ten months ago Dave Ramsey advised his listeners to do four things in the housing market:
- If you need a house buy a house, interest rates and home prices aren’t coming down any time soon, so go ahead and buy it.
- The real risk is being exposed to rent inflation, not a set high interest mortgage payment.
- It could take over three months to sell your house now.
- Remember you can refinance your mortgage to a lower rate when they come down.
Here’s the full transcript of Dave Ramsey’s home-buying advice:
“The thing that’s happening with real estate is interest rates have gone way up. They’re bumping up almost to seven percent now on a 30-year fixed, up from the threes. And, you know, seven percent in the scope of a life as long as mine is very low. I remember lots of years selling real estate at 11, 12%, 10%, 9%. Lots of years. I was on the radio; it was ten percent when I started this show. It was 10. And so then it came down to six, and we thought we were in nirvana. But then when it goes to three and it goes up to seven… see, seven is not good compared to three, but it’s really good compared to twelve. So, it’s an emotional thing.”
“So here’s what I’m telling you. The other article we got was from Bloomberg. It talks about the people that have bought homes. Their values are continuing to go up, especially if you bought like in Austin, Texas, Nashville, Tennessee, Dallas, Texas. If you’re buying in Phoenix, Arizona, they’ve gone down a little bit in some of those areas in the last four or five months. Yeah, a little bit in closing prices, too, and in the asking price. Because some had really gone crazy up, and so it’s settling. It’s settling, but it’s not diving; it’s not crashing. And what’s happening is these people that bought are going to become inordinately more wealthy over the next three years than people who rented. Because rents are also going through the roof. And so, rents are sucking the disposable income out of the renter’s budget. Whereas when you buy, because guess what happens to rents every year? They go up just about almost every single year. Rents go up. When you buy a house at six percent or seven percent, it doesn’t go up. You’re locking in one of your largest expenses, and the value of the property is going up because it’s not crashing. Unless you’re in one of those areas we mentioned, right? It’s not crashing overall. We don’t have a 2008 situation. And you’re going to see wealth inequality based on homeownership becoming more and more of a thing.”
“And so, what all that is to say is, if you haven’t bought a house and you’re thinking about buying a house, and you’re sitting on the sidelines waiting on interest rates to come down, they’re not going to come down any minute. And waiting on house prices to come down? They’re not going to come down; they’re going to go up. You need to go buy a freaking house right now. It’s a great time to buy a house because there’s not a lot of people around the block trying to buy that house right this second. You’re not going to steal it. And if you’re getting ready to sell a house, you need to have the expectation it’s going to take you 90 days to sell a house right now, like it has most of the time in the history of real estate. Most of the time in the history of real estate, that’s how it’s gone. And so, you need to have a 90-day expectation on selling and negotiating on your price. That’s normal. And if you’re thinking about buying, you ought to go buy right now. And, like we said, a real estate reality check: you can always refi later when the rates come back down. Yeah, if they come back down to three, and they might. I sure hope they do. That’ll be wonderful. Refinance and get rid of that higher mortgage, but you locked in the price of the house.” 
- Rising Rates and Historical Perspective: While current mortgage rates might seem high, especially when compared to recent lows, they’re relatively modest when viewed against historical highs.
- Emotional vs. Rational Decisions: Don’t let short-term rate fluctuations cloud the bigger picture. It’s essential to approach real estate with a balanced perspective, considering both historical data and future predictions.
- Property Value Trends: In many booming areas like Austin, Nashville, Dallas, and Phoenix, property values continue to rise, even if there are minor adjustments in the short term.
- Rent vs. Buy: Renting might seem like a safer option, but with rents consistently increasing, homeownership can offer financial stability. Locking in a mortgage rate, even if higher, ensures predictable monthly payments.
- Market Dynamics: While there might be fewer buyers during times of higher interest rates, it also means less competition. Sellers might also need to adjust their expectations, with properties taking longer to sell.
- Refinancing Potential: Buying a house now doesn’t mean you’re locked into that rate forever. There’s always the possibility of refinancing if rates decrease in the future.
In the ever-evolving landscape of real estate, it’s crucial to approach decisions with a blend of historical understanding and forward-thinking optimism. While current interest rates might deter some potential buyers, the broader benefits of homeownership, such as accruing equity and escaping the unpredictability of rising rents, remain compelling. Moreover, the potential for future refinancing offers a safety net for those concerned about current rates. The right time to buy a house is a personal decision, but understanding the broader market dynamics can guide you toward a choice that aligns with your financial and life goals.