This one’s a little longer, but there’s some good information worth sharing. My goal is to keep you informed about what’s happening in housing and mortgages…whether it’s for you or someone you know.
If you saw the headlines late last week that the U.S. economy apparently decided it wasn’t ready to slow down.
The economy added 162,000 jobs in August, dramatically stronger than expected, while unemployment held at 4.1%.
That sounds like great news—and for people looking for work, it certainly can be.
But if you’re waiting for mortgage rates to drop, good economic news can sometimes be bad news.
Here’s why—and why I don’t necessarily think that means buyers should sit on the sidelines.
First: That Jobs Number Wasn’t Quite What It Looked Like
The headline was strong, but there was something interesting underneath it.
Of the 162,000 jobs added:
59,000 were in restaurants and bars.
42,000 were in local government education.
That’s 101,000 of the 162,000 jobs coming from just those two categories. And the education increase largely offset losses from the previous month.
So I wouldn’t interpret this as the entire economy suddenly roaring back to life.
But financial markets don’t always wait around to dissect every detail.
A stronger-than-expected economy gives the Federal Reserve less urgency to lower rates. And when expectations for future interest rates move higher, mortgage rates can move with them.
Translation for homebuyers: waiting for substantially lower rates may take longer than we’d like.
So… Is This a Bad Time to Buy a House?
This is where I think the conversation gets much more interesting.
There’s no universal “right time” to buy, and buying a home—particularly your first one—can require a meaningful adjustment in your monthly budget. But I also don’t think the decision should come down to whether the new payment feels comfortable compared with what you’re paying in rent today.
If you’re fortunate enough to be paying $2,000 in rent and buying means taking on a significantly higher housing payment, of course that’s going to feel different.
That doesn’t automatically mean buying is the wrong financial decision.
The better questions are: Can you qualify? Does the overall financial picture make sense? How long do you expect to own the home? And is building equity through homeownership important to your long-term goals?
Because there are legitimate long-term arguments for owning housing that have very little to do with guessing next month’s mortgage rate.
1. We Still Haven’t Built Enough Housing
This isn’t just Realtor marketing.
Freddie Mac estimates that the United States remains approximately 3.7 million homes short of the housing supply needed to meet long-term demand. Different researchers calculate the shortage differently, but the underlying conclusion is remarkably consistent: we have a structural housing-supply problem.
And high borrowing and construction costs aren’t exactly making it easier for builders to solve it.
That’s an important piece of the housing story that gets lost when everyone focuses exclusively on mortgage rates. There simply aren’t enough homes in many of the places people want to live.
Over the long term, limited supply combined with continued demand is one of the fundamental reasons I remain a believer in homeownership.
2. A House Is a Real Asset—And Inflation Matters
Inflation hasn’t disappeared. When prices rise, cash buys less. Rents can rise. Labor gets more expensive. Building materials get more expensive. Replacement costs rise.
A home is different because it’s a real asset.
Research has found that real-estate ownership can provide protection against inflation over longer periods. There’s also an interesting benefit for homeowners carrying fixed mortgage debt: inflation can reduce the real burden of that fixed debt over time.
Think about that for a minute.
If you take out a 30-year fixed mortgage today, your principal-and-interest payment doesn’t increase just because groceries, wages or rents increase.
Your property taxes, insurance, maintenance and other housing expenses certainly can increase, so that doesn’t mean your total housing cost is frozen.
But you’re controlling a real asset while paying back fixed mortgage debt in future dollars. And every month, part of that mortgage payment is going toward an asset you own.
That’s one reason homeownership has historically been such an important long-term wealth-building tool.
3. The Rent-vs.-Mortgage Comparison Doesn’t Tell the Whole Story
I hear some version of this regularly:
“Why would I buy when my rent is so much cheaper than the mortgage payment?”
It’s a completely reasonable question.
But there’s another question worth asking:
What is the lower rent allowing you to accomplish financially?
If you’re renting inexpensively and consistently investing the difference, that’s absolutely part of the equation. But if the lower rent isn’t actually resulting in significant additional savings or investment, then the comparison becomes more complicated.
Five or ten years from now, you could still be renting—potentially at a much higher rent—while having missed years in which you could have been paying down a mortgage and participating in any appreciation of the property.
Appreciation is never guaranteed, and buying isn’t automatically better than renting. But “my mortgage would be higher than my rent” isn’t enough information by itself to decide whether buying makes sense.
4. Today’s Rate Isn’t Necessarily Your Forever Rate
This is probably the biggest thing I talk about with buyers right now.
Nobody knows exactly where rates are going, and I don’t recommend buying a house based on a promise that you’ll be able to refinance later.
But if you qualify for the home, understand the payment you’re taking on, have looked at the overall financial picture and decide that becoming a homeowner makes sense for you, today’s rate doesn’t necessarily have to be your rate forever.
If rates eventually decline enough to make refinancing worthwhile, homeowners may have an opportunity to lower their payment. What you generally can’t do later is go back and purchase today’s house at today’s price.
That’s why I encourage clients to separate two questions:
Does becoming a homeowner make sense for me financially and personally?
and
Am I avoiding buying simply because the payment feels high compared with my current rent?
Those are very different questions.
I’ve been doing this long enough to tell you that none of us can consistently time interest rates or the housing market perfectly.
The Interesting Opportunity Nobody Talks About
There’s another side to higher mortgage rates.
They discourage buyers. And fewer competing buyers can mean more negotiating power.
Depending on the property and seller, I’m seeing opportunities to structure transactions using things like seller credits, temporary rate buydowns, permanent rate buydowns and other financing strategies that weren’t nearly as realistic when buyers were fighting with 15 other offers.
I’d much rather help someone negotiate intelligently on the price and terms of a property than tell them they need to wait indefinitely for the perfect interest rate.
Sometimes a seller credit or a different financing structure can change the numbers considerably.