Don't do it. Just don't! Don't rush out to buy a house just because mortgage rates are ticking up. We can understand rushing down the street for an ice cream cone, pizza, or burrito, but rush one of the largest decisions you'll ever make? Sadly, many people did just that last week.
A weekly report issued by the Mortgage Bankers Association of America shows that applications for home mortgages leapt 6.9% in the week ending August 1 -- the second-highest level since reporting started in 1990. This news sent homebuilder stocks higher, led by the largest, Pulte Homes
The jump in applicants came on the heels of a climb in 30-year and 15-year mortgage rates, which have risen to levels not seen in more than a year. The record increase in applications is only for new home mortgages, not refinancings, which have declined rapidly with the rise in rates. Apparently, many new applicants are thinking, "I need to buy a house, maybe any house, right now, before rates go higher."
Don't. Don't rush it. Keep your perspective in this important situation. The 30-year mortgage rate is around 6.5% now, and that is still very close to 45-year lows, and is still several points lower than the rates we lived with in the 80s and 90s. (Check out average 30-year mortgage rates from 1971 to 2003.)
As recently as 2000, the average 30-year rate was 8%. In 1990, rates were at 10%. In 1982, they were 17%! So, if you take your time to find your dream house, rather than rushing into a purchase right away, and rates rise to above 7% in the meantime, you'd still be getting an excellent rate just a few points above the 45-year low. And don't ya know by now: Nobody can time market bottoms and tops perfectly -- not even 10% of the time, and almost never on purpose.
Now, if you have your dream house in your sights, your ducks are lined up, and you're financially secure in buying, then yes, it makes sense to lock in a lower rate when it appears rates are rising. But the last thing you want to do is make a rash decision just to try to keep from paying another half-point on your mortgage -- an outcome that may or may not even occur.
Make sure you're buying a home for the right reasons. Be certain as possible you're not overpaying. Know for sure how much you can afford. Take your time to learn about lending options, including reading our 9 facts about mortgages. Finally, visit the Motley Fool Home Center to learn as much as you should before buying a house.
And be careful shopping out there! A home ain't a burrito.