Should you buy your dream home in today's rate environment?

After some encouraging signs in recent months, inflation ticked back up again in July, demonstrating that the path back to lower costs and better interest rates isn't totally clear. 

While inflation overall may still be cooling, the interest rates meant to combat it are now much higher than they had been in recent years. In fact, with the Federal Reserve raising the benchmark interest rate to a range between 5.25% and 5.50% in July, rates are now at a 22-year high.

While this may be welcome news for those with CD and high-yield savings accounts, it's been negative for those homeowners looking to refinance and those buyers searching for their next home. The average 30-year mortgage loan interest rate was 7.14% as of August 11, exponentially higher than it was during the height of the pandemic. With that context, it's understandable if many buyers have elected to sit on the sidelines.

But what happens when their dream home is listed for sale? Should buyers pursue it aggressively or simply wait for the rate environment to improve? These are the questions many buyers are considering now.

If you're in the market for a new home purchase, then start by exploring your rates and options here now.

Should you buy your dream home in today's rate environment?

So you've dutifully done your research, worked with your agent, have been pre-approved and finally found your dream home to buy … and the best interest rate you can get is 7% for a 30-year loan. Should you buy it anyway? Or should you wait for the rate environment to change and keep your fingers crossed that a similar house is available then?

Even with rates as high as they currently are, many experts would advise the purchaser to go through with buying the home. They can always refinance to a lower interest rate in the future, but the dream home they found will be long gone by then, and there may not be anything comparable available.

"There is some truth to the saying 'marry the house, but date the rate,'" Peter Idziak, senior associate at Polunsky Beitel Green, who specializes in residential mortgage lending, recently told CBS News. "Home inventory is still very constrained in many areas, so a potential buyer who finds a home she loves may be better served by purchasing now, even with rates elevated, and hope to refinance in two to three years when rates may be lower."

Granted, no one knows when interest rates will fall (nor do they know how much they'll ultimately drop). One thing all experts do agree on, however, is that rates will inevitably drop at some point. But that point could be so far into the future that your dream home is no longer around.

In these rare, but confusing, circumstances, it may make sense to bite the bullet and buy the home at the higher rate (assuming you can afford the larger monthly payment). Just do so with an eye toward the future and any openings for a refinance. (Most experts recommend refinancing if you can secure a rate at least one full percentage point lower than your current mortgage rate.)

See what mortgage interest rates you qualify for now here.

Other advantages to buying a home now

Discovering your dream home can be a strong enough incentive, but here are two other advantages to buying a home now:

• You can start investing your dollars. Renting may be easy, but it's not a beneficial long-term investment. In fact, it's not an investment at all. By purchasing a home now, you'll start paying down your mortgage immediately, providing you with a financial investment you can rely on for decades to come.
• You can get a greater tax return. Mortgage interest can be deducted from your taxes at the end of the year. So, even with elevated interest rates, you'll be able to make some of your money back when it comes time to filing your taxes — something that can't necessarily be said if you're still renting or living with friends or family.

The bottom line

Mortgage rates are so high that many buyers have understandably decided to wait for a more favorable time to act. But if you find your dream home, you may only have one chance to buy it. Don't let interest rates discourage you from doing so. You can always refinance to a lower rate in the future, but your dream home will only be available for you here today. Get started here now!