After my last post regarding buying a house, I received a comment from someone saying their sister is looking at buying a house. Specifically, the issue of interest rates was raised and there was a question of whether someone should hurry up and buy now.
As far as interest rates, nobody really knows for sure if they will go up or down in the near future. Regardless of one's knowledge of Austrian economics, the future is unpredictable because of human action. Austrian economics can help us make forecasts based on certain conditions, but even then the timing is almost impossible. Of course, if any of us knew what interest rates would do next week or next month, we would be rich. If we could do it on a consistent basis, we would be richer than Warren Buffett.
While I think interest rates will go up over the longer term due to Federal Reserve inflation and the government running up debt, it really is impossible to say what they will do in the short-term. There were people 6 or 7 years ago saying that interest rates just couldn't go any lower and yet they did. If the stock market crashes again and people get scared of another recession (or the recession not ending, depending on how you look at it), then rates could easily go down more.
The good thing is, I don't think interest rates should really dictate to anyone whether they should hurry up and buy a house. For the person's sister who will be looking, my advice is to look, but not hurry. Unless you live outside of a big city in the Midwest, then chances are that there are some good deals in your neighborhood. This really is a buyer's market and you can afford to be patient and wait for a good deal. In some areas, there are a lot of short sales. While these can be really frustrating, they can also pay off. While some foreclosures are good deals too, you have to be careful not to get into any bidding wars with other people.
The good news is that if there is a jump in interest rates, it will probably just drive prices down commensurate with the rise in rates. If rates fall, then housing prices may tick up, but there should still be some deals out there.
You obviously can't time the short-term moves in interest rates. This is just a game of luck. You can get a contract on a house and rates may go up or down the day before you were planning to lock in. But I wouldn't make a big decision based on a quarter point of interest. And if for some reason you buy a house and rates fall after that, you always have the option of refinancing.
So for buying a house, my advice is that you should do it if it is right for you and you can afford it. Be patient and don't feel rushed because of interest rates. When you do buy something, make sure you lock in a 30-year fixed rate mortgage so that you can pay back the bank in depreciated dollars later on.