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Buying a house today can be convenient thanks to favorable interest rates and stable investment opportunities. It's a question that many, at this precise moment in history, are asking themselves: is buying a house, between inflation, rising interest rates, and a rapidly changing real estate market, worth it or is it a gamble?
Finding the answer isn't as simple as it seems. For this reason, we relied on our Victor Ranieri, General Manager at Casavo.
Hi Victor, in recent years we have experienced a pandemic, an unstable geopolitical situation, and rising inflation. How will all this impact or is it already impacting the real estate market?
These have been particular years, which is why today the attitude is more cautious.
When we experienced the financial crisis in 2008, central banks lowered interest rates to support the economy. A mechanism and a strategy that worked: demand for mortgages soared. The perhaps overly expansionary policies of central banks and recent geopolitical developments, however, have led to price volatility, together with high inflation. This is why central banks have decided to raise interest rates today.
And what does the increase in inflation entail?
Theoretically, it should mean that the number of homes soldin 2022 is lower than in 2021. In reality, however, the adjustment between demand and price is not immediate, so this year it is possible that no particular fluctuations will be recorded. Probably, in the first 6 months of 2023 we will see a more cautious attitude on the part of those who buy considering current house prices in a context of rising interest rates on mortgages, while those who sell, in turn, may wait a few months to ensure they do not devalue their home.
What will change for mortgages?
The most interesting statistic concerns the choice of the type of rate, which has varied significantly in recent months, especially as a result of the ECB announcements this summer, which caused a significant increase in rates. If the EURIBOR index, the reference interbank rate communicated daily by the European Money Markets Institute, has been almost constantly in negative territory for about the last 7 years (up to mid-July EURIBOR 3 months and up to mid-August EURIBOR 1 month) and the IRS index, the rate that is applied to a fixed rate mortgage, almost constantly well below 2%, since this spring/summer we have witnessed a surge that has caused a constant updating of the price lists by the banks.
What does this mean for those who ask for a mortgage?
The direct consequence is that some fixed rate mortgages have become too expensive for consumers, who have therefore started to consider and choose variable rates, and we can see this first-hand by looking at Data from our Casavo Mutui team. While at the beginning of the year, almost all of our clients opted for a fixed rate, variable rates (mainly capped or fixed-rate) now account for nearly 50% of our clients. Rising interest rates have also made mortgage refinancing much less attractive during this time. Navigating this market can be a real challenge. For this reason, with Casavo Mutui we have created an analysis and comparison system capable of monitoring all changes to help consumers make the best choice.
Victor, so is buying a house now a gamble or not?
Investing in real estate and doing so in large cities is always a guarantee.
Today interest rates are higher, but house prices, which are already affordable now, will probably be impacted and will undergo a further decrease. These two aspects mean that buying a house now is not much different than before the pandemic, and the interest rates we have today are no higher than in other historical periods, such as in spring 2012 (Il Sole 24 Ore reports extreme cases, between 6% in 2012 and 0.89% in 2019). Furthermore, even if mortgage rates have increased, the "real" interest rate must be considered, that is, the interest rate net of inflation. And that's not all: mortgage products for under-36s are still available, and government initiatives to protect first-time home buyers will likely continue. Buying a Casavo-guaranteed home is also an advantage: they are safe homes, where customers won't encounter any negative surprises because they have already been inspected and/or renovated by us. In this way, we meet the need for a ready-to-move-in home, without additional post-purchase expenses.
Your new home is waiting for you, and it's just as you imagine it.