Should You Buy a Home in Late 2023?

September 16, 2023

Some think the question of buying a home in 2023 is absurd. They look at the high interest rates we see at press time compared to the rates available a year or two ago and wonder why anyone would purchase a home under current conditions.

That may be the right answer for those who aren’t house hunting with any sort of refinance strategy for getting out of these higher rates once lower interest rates begin to take hold. But what about those who do think long-term?

FHA Loan Interest Rates vs. Supply and Demand

On Wednesday, September 6, 2023, CNBC reported mortgage loan rates pulled back a bit for a few weeks in Q3, but “not enough to revive mortgage demand.” And that demand is a key factor for some house hunters.

In a seller’s market with too much competition for the existing inventory of homes for sale, the borrower doesn’t have much negotiating leverage. Asking for a lower price in a seller’s market will likely get you laughed out of the room, as will asking for seller concessions.

FHA loan rules allow the borrower to negotiate with the seller for up to six percent of the sale price of the home. Seller concessions can be used to pay closing costs but cannot be used for the down payment or taken in cash.

But when CNBC reports that total mortgage applications fell sharply compared with the previous week, some house hunters will sit up and take notice. Why?

The ability to negotiate a better deal with the seller may offset higher rates for those who have a plan to get out from under those rates as soon as they begin coming down.

Buy Now, Refinance Later?

You likely have read more than once that a key strategy for buying a home with high rates is using an FHA adjustable rate mortgage.
 
And it’s true. The introductory rate on an FHA ARM loan may be lower than the fixed interest rate option. The intro rate can last between one year and 10 years, so it’s a good idea to examine this option closely.

For some, the road to new home ownership starts getting clear at this point. A lower rate on an FHA ARM loan, combined with a lack of competition for the house you want to buy, and you may find yourself in a position of strength as a buyer that wasn’t possible earlier in the year.

This strategy is not right for all borrowers. You must look at your finances and your financial goals to determine if the approach is right for you. Yes, it does mean being more proactive about monitoring interest rates after you have closed the loan, but for some borrowers, this extra effort is worth the savings they might realize later by refinancing.

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