Buy During High Interest Rates 2023

• Interest Rates Rising in 2023: Table of Contents
• Housing Prices May Be Lower
• Fewer Buyers in the Real Estate Market
• Less Risk During Buying Process
• Home Appraised Value Sells for Less
• You Buy Down Your Interest Rates
• Refinance at a Later Time
• Real Estate Risks Amid Economic Instability
• What's Next

In recent years, mortgage rates have soared to over 7%, which is more than double the rate in 2023. This drastic increase in interest rates may seem daunting to homebuyers, but is it really a bad time to invest in real estate? In this article, we will discuss the benefits of buying a house with high interest rates.

Interest Rates Rising in 2023: Overview

Many homebuyers may feel hesitant to purchase a home during times of high interest rates. They may feel that they are getting less value for their money and may face difficulties securing financing for their dream home. However, waiting for interest rates to drop may not be the best option, as a home is more than just a financial investment - it's a place to live, make memories, and call your own.

While there are certainly some drawbacks to buying during times of high interest rates, such as a potential increase in monthly mortgage payments or the need to compromise on certain features of the home, there are also some unique advantages to consider.

Major advantage of buying real estate during high interest rates is less competition among buyers. This means that sellers are willing to negotiate on prices or provide additional incentives to make a sale quicker. High interest rates makes it easier to qualify for a mortgage. Banks and lenders are more likely to approve borrowers who have a good credit score and a stable income.

Second benefit of buying your home during high interest rates economy is that it can actually save you money in the long term. While it may seem counterintuitive, buying a home during a period of high interest rates means that you can lock in a lower interest rate for the life of your loan. This means that you'll save thousands of dollars in interest payments over the years compared to if you had waited for interest rates to drop.

Down below we are going to go in depth on the benefits of purchasing your new home during economy uncertainity and high interest rates is a good timing in 2023. 

Housing Prices May Be Lower

You as a homebuyer thinking about buying a home but worried about high-interest rates you'll be glad to know housing prices are actually lower. Lower home pricesis a major benefit of buying in a high-interest rate environment. According to a report by GOBankingRates, home prices dropped by 2.4% between June 2022 and November 2022. Experts predict a drop of 10% to 15% before the end of the year in 2023 following home data of quarter 3 from last year. Which would be the largest housing price correction since World War II. This market softening, or correction, is making homes more affordable for many people, especially if you have a large down payment to help offset higher interest rates.

Fewer Buyers in the Real Estate Market

When interest rates are high, it's harder to qualify for a loan. Which means there will be fewer buyers competing for existing home inventory. As a result, homes are staying on the market longer. Resulting in you as homebuyers to be able to take more time to consider your choices and make a decision. This is especially beneficial for first-time homebuyers in Thailand who may need more time to explore the market and find the right home.

Less Risk During Buying Process

Not only is it harder to qualify for a mortgage, which means you are less likely to buy more home than you can afford. But you’ll also face fewer risks throughout the bidding process. In a seller’s market, buyers often feel forced to waive contingencies to compete for the home they want. That could mean that you agree to forego a home inspection, putting you at risk for pricey repairs after you move in. In a high-interest rate environment, however, there are fewer buyers, so you're less likely to be pressured into making a hasty decision.

Home Appraised Value Sells for Less

Similarly, in a seller’s market, many homebuyers willing to pay more than the appraised value for home of their dreams. That puts buyers without extra cash at a disadvantage, since you typically can’t secure a mortgage with a loan-to-value ratio under 20%. When you agree to pay more than the home’s appraised value, you’ll need to pay the difference in cash. In a high-interest rate environment, there are fewer buyers. Resulting in homes less likely to sell for more than their appraised value.

You Buy Down Your Interest Rates

Similarly, in a seller’s market, many homebuyers willing to pay more than the appraised value for home of their dreams. That puts buyers without extra cash at a disadvantage, since you typically can’t secure a mortgage with a loan-to-value ratio under 20%. When you agree to pay more than the home’s appraised value, you’ll need to pay the difference in cash. In a high-interest rate environment, there are fewer buyers. Resulting in homes less likely to sell for more than their appraised value.

Once you find a home you can afford, you have options to secure a lower interest rate. You may be able to purchase "points" on your mortgage, which reduces your interest rate. Typically, for every 1% of your mortgage loan amount you pay at closing as "discount points," your interest rate will drop by 0.25%.

Refinance at a Later Time

Refinancing your home during high interest rates is a good option. When you as a property owner plan to stay in your new home for a while. You may consider refinancing if mortgage rates drop. In Thailand mainly, you can refinances after the first 3 years of your mortgage life cycle. You’ll have received the benefit of buying a home at today’s lower prices and then reduce your mortgage payments by refinancing at tomorrow’s (hopefully) lower rates. Of course, you want to make your mortgage payments on time and preserve your good credit to take advantage of refinancing when rates drop. And remember, rates may not drop right away, if at all. So make sure you can afford the home you’re buying at today’s rates in Thailand at 1.75% from March 2023. 

By considering these benefits, you can see that buying a house in a high-interest rate environment may not be as daunting as it seems. With proper planning and budget you have your dream home.

Real Estate Risks Amid Economic Instability

While securing a mortgage now may mean that you’ll get less house for your money, it’s important to remember that a home is more than just a financial investment. It’s a place to live, create memories, and set down roots. If you’re ready to make a move and can afford the home you want, waiting for interest rates to fall may not make sense.

But it’s not all sunshine and rainbows when buying in a high-interest rate market. There are some drawbacks to consider, such as the potential difficulty in getting approved for the home you want. Lenders take into account your overall monthly payments in comparison to your income, overall debt, and other financial obligations. Buying when interest rates are high may mean sacrificing on some levels, such as buying a smaller or more outdated home.

What's Next 

In conclusion, although high interest rates may seem like a deterrent to buying a home. There are advantages to doing so. As long as you can afford the your dream, home you want and budget carefully. You may benefit from buying in a high-interest-rate market. For more information and details on buying real estate in Thailand. Contact Kai Baan Thai today, by pressing the button below. 

FAQs

Q: What is the difference between nominal and real interest rates? 

A: Nominal interest rates don't factor in inflation, whereas real interest rates do. To calculate the real interest rate, simply subtract the inflation rate from the nominal interest rate. Let's say the nominal interest rate is 6%, but the inflation rate is 4%. In this case, the real interest rate would be 2%. So, even though the nominal interest rate may seem high, the real interest rate gives a more accurate picture of what you'll actually be paying.

Q: How does interest rates affect real estate?

A: It's simple: higher interest rates can make borrowing more expensive, which can discourage people from borrowing money and reduce their spending. This can lead to a decrease in demand for real estate, which can cause property values to drop.

The relationship between interest rates and real estate values is also evident in how they affect the calculation of discount or capitalization rates. These rates take into account the risk-free rate (the rate of return on a safe investment) plus a risk premium. Additionally, real estate values are influenced by the supply and demand for properties and the cost of developing new properties.

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