Surging Mortgage Rates Are Causing Home Buyers to Retreat. But Should Higher Interest Rates Get in the Way of You Buying a Home?

It's easy to see why buyers are backing away.

Last year, home prices were sky-high and housing inventory was limited. This year, conditions have been similar -- but there's been a key difference between 2021's housing market and 2022's.

In 2021, home buyers could benefit from low mortgage rates. In fact, rates were low enough to help offset some of the higher home prices buyers were seeing.

This year, however, mortgage rates have been rising steadily since January. And recently, the average 30-year mortgage exceeded the 6% mark. It's not shocking, then, to learn that purchase mortgage applications are down 29% compared to this time last year, according to new data from the Mortgage Bankers Association.

But are higher mortgage rates a reason to put your home buying plans on hold? Or should you forge forward anyway?

Why you may want to hit pause on your house hunt

It's not just that mortgage rates are higher right now -- it's that home prices are still very high as well. Granted, we're starting to see home price gains slow down, which is a good thing for buyers. But all told, buying a home is a very expensive prospect these days, and buyers have to face the double whammy of higher prices and higher borrowing rates.

If you're iffy about buying a home from a financial standpoint, then you may want to consider putting your plans on hold and waiting for home prices to come down. That could happen in 2023 if housing inventory continues to increase, which it has been doing over the past several months.

Why you might still want to buy a home now

It's true that if you buy a home between now and the end of 2022, you might end up paying a lot and getting stuck with a higher mortgage rate than you'd like. But if you're in a stable financial situation -- say, you have a great job, lots of savings, and plenty of money for a down payment -- then you may want to take the leap into homeownership and start enjoying the benefits. Those include getting to build equity, enjoying tax breaks like deductible mortgage interest, and not having to follow a landlord's rules.

Plus, while mortgage rates may be high right now, we don't know where they'll be in two or three years. And so even if you get stuck with higher borrowing costs initially, you can always look to refinance your mortgage if rates start falling. So if, for example, you end up signing a 30-year mortgage at 5.9%, you may end up being able to swap that mortgage loan for a new one at 4.2% in a couple of years, thereby shrinking your monthly payments.

What's the right call?

Ultimately, it's easy to make the argument to not buy a home right now due to higher home prices and mortgage rates. But if you're really eager to become a homeowner and are in a great place financially, then it could pay to buy in the near term, regardless of these economic conditions.