Adjusting Our Expectations

There’s a popular feeling out there that interest rates will ‘come back down’. This feeling, I’m noticing, is the most common amongst people under around age 35. In other words, those who likely never owned assets before around 10 years ago and have never known anything other than low rates. This portion of the population also doesn’t understand the role interest rates play in the broader economy, and why we had rates as low as we did for as long as we did.  Although it’s possible you could see rates continue to be increased until the federal government feels it’s safe to relax them, it’s important that not just this age group, but all age groups get acclimated to rates being in the range or around 5% for a long time. And an overall struggle to believe this is evidenced by the number of property owners we’re seeing select 1-year or 2-year terms, feeling that they’ll have significantly better options in 1-2 years’ time.

The other mortgage-related factor is this. A huge percentage of the property-owning population has already been faced with adjusting its standard of living. With rates increasing over the past year, anyone on variable-rate loans has already been faced with payment amounts rising and shifting their spending and budgeting accordingly. This effectively eliminates most (if not all) of this group from the possibility of ‘needing’ to sell unless their personal circumstances change in a big way. The portion of the population enjoying the remaining 1-3.5 years of a fixed term will slowly be turning over and renewing, and I don’t anticipate a large enough group of that population needing to renew and being unable to within a small enough timeframe of one another to bring a ton of motivated sellers to market at the same time.

At some point, rates will be relaxed a bit, but only by a bit and not be enough to drastically change the type of home people can afford. Best bet is to plan the next 5-10 years of your life based on current rates.