The elephant in the room….DEBT
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Mortgage rates have been on a wild ride lately. Larry Yun, chief economist at the National Association of Realtors (NAR), recently said that mortgage rates are plunging. He points to slowing inflation data as a sign that the Fed’s interest rate hikes should be over soon, potentially leading mortgage rates to fall from around 7% down to 6%.
It’s an enticing idea, but don’t break out the champagne just yet. Just a few days ago, Fed Chair Jerome Powell said the Fed is “not confident” that rates are high enough to bring down inflation steadily to their 2% target. He warned that “ongoing progress toward our 2% goal is not assured” and that “inflation has given us a few head fakes.”
In other words, the Fed is still on high alert when it comes to inflation, and more rate hikes could be on the table if prices heat up again. Mortgage rates track closely with the Fed’s benchmark rate, so more hikes from the central bank would likely push mortgage rates back up.
Rather than pin hopes on a sustained drop in rates, potential homebuyers should focus on how to make the most of the current environment. High rates come with their own advantages, like lower prices and more room for negotiations. Locking in a lower purchase price can provide more value over time than getting a slightly lower rate. Rates fluctuate, but home values generally appreciate over the long run.
For those with an existing mortgage, now is a good time to explore options like refinancing into a lower rate, switching to a shorter-term loan to pay off your home faster, or looking at alternate products like home equity loans or lines of credit. The key is focusing on your financial goals, not obsessing over unpredictable rate moves.
The bottom line is rates may fall from here, but they also could head right back up if the Fed deems it necessary. Rather than counting on low rates to save the day, accept the reality of a higher rate environment and make strategic moves to strengthen your financial position. Tuning out short-term rate fluctuations and taking a long-term outlook is the smartest plan.
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