Home Buying in Today’s Market: Is a Mortgage the Right Choice?

With sticky inflation and the anticipation that the Federal reserve will not begin cutting rates until later this year, many homebuyers are left wondering if the right time to buy is now. New home listings are on the rise in many parts of the country compared to the low inventory experienced in most markets over the past couple of years. Those who do find a home are often left wondering if they can afford the costs that come with the current high mortgage rates. Those who can afford not to have a mortgage may be wondering whether they should get one at all.

While rates are anticipated to stay higher for longer, that doesn’t mean a mortgage today is not the right answer. In general, buying a home with the bank’s money is beneficial to you as it keeps more of your assets liquid. Pulling cash out of your bank account or selling mutual funds and ETFs in your investment portfolio is a lot easier than selling a home to generate funds.

More liquidity also means that those funds are available to invest in your investment portfolio, which in the long run tend to outpace the growth rate of residential properties. The opportunity cost of pouring a large sum of money into a hard asset, like a home, instead of a more lucrative investment is often the unseen cost that buyers don’t consider. This also points to a mortgage as a good option, even for those who may be able to afford not to have one.

Although houses are generally not going to outpace funds you might invest in the stock market, mortgage payments are a form of forced savings. For many people, what income is not saved into retirement accounts, for example, is typically spent somewhere else. When you have a mortgage payment, this is a form of saving as you are putting money into a home that will start to increase your net worth. This savings can then be used to leverage into a larger home or be swept into your brokerage account should you choose to downsize one day.

Overall, homebuyers in today’s market should not be deterred by the current market environment. Although mortgage rates are higher than in recent history, they still make sense for many buyers today. They can be a good savings tool for those who would otherwise spend those dollars and offer more liquidity to those who could otherwise purchase a real estate property outright. While rates are higher today, they have come down from the highs of 2023 and likely will continue to do so in years to come, which could offer those buying with mortgages today the opportunity to refinance to a lower rate in the future.

If you are considering purchasing a new property, understanding the decision in the context of your broader financial plan is important. At Heritage Wealth Architects, we put financial planning first when thinking about how to help you reach your goals. Please reach out to us with any questions.

You can reach Ashley Klemann, CFP? at 651.289.6448 or [email protected].