How rising mortgage rates affect home-buying power
Interest rates on home mortgages are rising rapidly across the United States, which seems to be slowing most housing markets. (Some, like the market here in Corvallis, have been less affected. Give it time.)
The average mortgage rate for a 30-year loan was about 3.0% at the start of the year; today, it's at 6.245% — even for somebody with an excellent credit score over 800.
Kim and I are fortunate that we bought our home in 2021 instead of waiting until 2022. Mortgage rates weren't actually a factor during our deliberations last year; the historically low rates were simply an added bonus for buying when we did.
When we purchased our home last August, we took out a $480,000 mortgage at 2.625%. We didn't hit the precise bottom of the mortgage market (that was early January 2021, when we might have had a loan for 2.5%), but we came close.
Here's a chart from the Federal Reserve that shows mortgage rates from the past 2.5 years.
And here's a chart that shows mortgage rates for the past 50+ years:
Mortgage rates have hovered at historic lows since the Great Recession of 2007-2009. And rates fell even further during the COVID pandemic. (These low rates are partly responsible for the blazing-hot housing market of the past two years.)
What do these rising mortgage rates mean to actual home buyers? Let's use our situation as a representative example.
A lesson in speaking up for yourself: I saved $575 for a moment of discomfort
Today, I want to share a small victory.
Like all humans, I have flaws. One of mine is that I hate confrontation. It's a family thing. I'm not sure why, but none of us like conflict. Sure, this trait has some upsides. My brothers and I don't get into a lot of arguments and fights with our family and friends. And when we do have conflict, we do our best to resolve things quickly.
But this conflict avoidance has some enormous downsides. When trying to make peace, for instance, we're likely to give far too much in an effort to reach compromise quickly. Plus, we don't like to negotiate. Negotiation is, inherently, conflict. No thanks!
In my life, this is especially problematic in circumstances where I need to stand up for myself. Let me give you an example.
The leak in our bathroom ceiling
Ah, the joys of homeownership.
Remember the peeling paint in the bathroom ceiling that I mentioned last week? The peeling paint that I felt certain was due to humidity from the shower and lack of adequate ventilation? Well, I was wrong. The paint is peeling because we have a leak in the roof.
It seems to be a small leak, but it's a leak nonetheless.
Monday morning, I noticed that there was a tea-colored water stain in the area where the paint had peeled. "I don't like that," I thought, and I snapped a photo.
I drove up to the family box factory, where my brother and I spent several hours waiting for Mom to be discharged from the hospital. While we waited, we sorted through her paperwork to be sure we had everything in order. We updated her personal-finance records. We chatted about the future.
In the end, Mom was not released from the hospital on Monday, so I drove home in the heavy rain. When I arrived, I checked the water spot in the bathroom ceiling. Had it grown? It had.
So, I ventured into our attic for the first time.
Keeping a home improvement projects to-do list
My Christmas curse continues! You see, for a long time now — almost thirty years — Christmas has become synonymous with home problems for me.
This all started in the first home that Kris and I owned back when we were newly married. We woke one Christmas morning to find that the water heater had overflowed, flooding the laundry room and much of the converted garage. Unfazed, we cleaned up the mess and spent our holiday without hot water. It was fun!
Since then, I've experienced a long line of home problems on Christmas day: frozen pipes, broken gutters, fallen fences, and more. And this year? Well, this year's issue was minor...but may lead to a major repair.
The house that Kim and I bought last August is in good shape. We made sure of that during the inspection period. Still, no home is perfect — and a house built fifty years ago has a few warts.
"Did you know something's wrong with the ceiling in the hall bathroom?" Kim asked on Christmas morning after she finished her shower. "The paint on the ceiling seems to be peeling."
"What?" I said. I went to take a look. Kim was right. The paint on the ceiling seemed to be peeling.
"I'll bet that's from moisture," I said. I found a footstool and climbed up to take a closer look. I turned on the ventilation fan. "Wow," I said. "The fan doesn't seem to be pulling any air. That's the root issue."
I toyed with the peeling paint, which was a mistake. The brittle stuff crumbled and fell to the floor in large chunks. "That's so strange," I said. I picked up a few pieces of debris. "Is this only paint? It seems so thick."
"It looks like it's just paint," Kim said. "But many layers of paint. Who knows? It could be something else underneath."
So, now we have the first urgent home project in our new place. It's not a huge deal, obviously, but it's something we want to repair sooner rather than later. It's just a matter of finding time. (This seems like something we should be able to fix ourselves rather than hiring out.)
This issue has actually been a blessing in disguise. Everywhere I live, I keep a master list of repairs and projects. But I hadn't yet drafted that list for our home here in Corvallis. This morning, I remedied that.
Grading homes: The system I used when picking a new place to live
This morning — because the sky was clear and I hadn't anything better to do — I let the dog lead me on a six-mile walk. For two hours, we wound our way through the streets of Corvallis. We sniffed drains, barked at squirrels, and in every way had a merry old time.
If I'd allow her, Tally would spend hours every day sniffing drains around the city.
As we walked, I reflected on how fortunate Kim and I were when we decided to move here. We were deliberate about our choice, sure, but it was still something of a gamble. Sometimes research and experience don't align. In this case, they have.
Why We Love Corvallis
After four months Corvallis seems like a perfect fit for us. There's so much we love about this place, such as:
A useful new tool to help you pick a place to live
Every now and then, The New York Times gives us an awesome new personal-finance tool. Back in 2007, they created an amazing rent vs. buy calculator, which they've diligently updated and maintained over the past fifteen years. A couple of weeks ago, they unveiled their where should you live? tool. [Warning: possible paywall, which is unfortunate.]
Here's how it works:
We created a quiz using data for almost 17,000 places across more than 30 metrics. Realtor.com shared housing prices with us; Yelp contributed tallies of restaurants, music venues and gay bars; and AccuWeather helped us collect statistics on temperature, sunshine and snowfall, to name just a few of our sources.
We want the quiz to be useful to anyone who’s thinking about moving — not just affluent, highly educated people who are working remotely because of the Covid pandemic. We’ve included data on affordability, jobs and abortion rights, which could be relevant to young people deciding where to start their careers. And we’ve quantified health care quality, snowfall and crime rates — criteria that might be top of mind for retirees.
To use the tool, you select from 35 different factors that matter to most people, factors ranging from population density to climate to racial diversity to political affiliation. You can even emphasize the qualities that matter most to you. The tool tells you which American cities best match your preferences.
We offered to buy a home for $128,000 over list — but it wasn’t enough!
Sunday evening, Kim and I made an offer on a house. The Greenwood Place (as we'll call it) was listed at $649,000. We offered $677,777 escalating to $777,777; no repairs required; and a $50,000 appraisal gap waiver.
Our offer was not accepted.
That's right: Two months after selling our home — and three months after beginning to search for the next place — Kim and I have waded back into this crazy housing market. We're not sure how long this process will last (or what the outcome will be) but we're prepared to be searching for many weeks, if not months.
Both our mortgage broker (Michael S.) and our real-estate agent (Michael K.) tell us we're doing things exactly right for this market.
- Kim and I both have credit scores over 800. "Everything looks unbelievably perfect here," Michael S. told us in June. "That's amazing. Perfect credit."
- We've sold our previous house and are currently renting a place while we search for another. This allows us to make offers without home sale contingencies.
- We're willing to take calculated risks to increase the strength of our offers, but we're not willing to compromise our financial health in doing so. "You can borrow $850,000 all day long," Michael S. told us. "You'd probably have zero difficulty qualifying for $1 million." We don't want to borrow a million dollars though because doing so would severely compromise our other goals.
All the same, there aren't many homes on the market right now. Demand far outpaces supply, which is driving prices up and creating insanely competitive situations. It doesn't matter whether we're doing everything right. We're still going to run into folks who can make cash offers at more than $128,000 over a $649,000 asking price.
Our plan? Be patient. Remain vigilant. We don't need to buy a home at the moment — and, in fact, perhaps it would be best if we didn't — but we want to be prepared to pounce if/when we find the right place.
Today, I want to share a bit of our thought process as we attempt to buy a home in 2021.
We sold our house!
June has arrived and it's glorious! The sunshine and warmer weather make living in Oregon wonderful this time of year. October is better, but June is a damn fine month here in Portland: wild roses, blackberry blossoms, and strawberries; birds, squirrels, and bicyclists; outdoor dining, evening strolls, and morning coffee on the porch.
I've been in a great mood for the past week, and it's not just because of the weather. It's also because, after three months of hard work, Kim and I have sold our country cottage. We're not sure what the future holds, but for now we're renting a small place in the Lake Grove neighborhood. It's fun!
And now that all of that work is finished, I can turn my attention to other things — such as writing about money. To kick things off, here's the story of what I've been up to for the past few months, of how we sold our house in this crazy real-estate market.
An uncertain future
On February 17th — in the middle of nine days without power due to an ice storm — we had the foundation contractor out to re-inspect our house. We experienced some settling last fall, and I was worried that might indicate deeper problems.
For thirty minutes, the contractor explored the crawlspace while I sat in the living room, fretting. When he finished, he came up to tell me what he'd found.
"Look," he said, "my assessment is the same as when you had me out here three years ago. Your foundation is fine. It's not failing. The house isn't falling down."
I felt a wave of relief wash over me.
"That said," he continued, "I do think you'd feel better if you were to reinforce one section of the foundation. It looks to me as if you're seeing some minor expansion and contraction of the soil, which is what's causing your settling issues. It'd cost about $9000 to remedy that."
That evening as Kim and I huddled in our powerless living room, bundled in coats and jackets and using flashlights to read, I made a confession.
"I want to move," I said. "I know we both love this house and this yard, but it's taking a toll on my mental health."
"I know," Kim said. "I know you've been struggling. Ever since we moved in, I've seen how you've grown increasingly depressed and anxious. I'll do whatever it takes to make you happy, but I think maybe you should give up on your dream of owning an old house."
She's right. I love old houses but my personality isn't suited for them. They stress me out. (My ex-wife and I owned an old house too — she still lives there — and it caused me endless stress, as well.)
For the next couple of weeks, Kim and I spent many hours discussing our best course of action. Then, one month ago today, we made a decision: We would sell the house as soon as possible (to take advantage of the crazy Portland real-estate market), then rent a place for a while as we made a careful, calculated decision about where to live next.
How to prepare for a natural disaster
My world is on fire.
As you may have heard, much of Oregon is burning right now. Thanks to a "once in a lifetime" combination of weather and climate variables -- a long, dry summer leading to high temps and low humidity, then a freak windstorm from the east -- much of the state turned to tinder earlier this week. And then the tinder ignited.
At this very moment, our neighborhood is cloaked in smoke.