Many are speculating that the Fed is going to raise interest rates sometime between September and November. They were all set to raise rates this month until the Chinese markets took a tumble.
Most people believe the US is in trouble because China owns so much of our debt. It’s true, China did buy up some of our securities but this was really a hedge to prop up the Yuan. China has been playing financial games for years. Their economy isn’t as strong as many would have you believe.
Mortgage rates are more closely aligned with the 10 year note. Even if the Feds raise interest rates it may not move the 10 Yr note much. So it’s not automatic mortgage rates will rise substantially.
If they do, sellers could be hit the hardest. Here’s why. For every 1% rise in rates, a buyer’s purchasing power decreases about 11%. This limits the amount of buyers who qualify for your home. But here’s the kicker. Most sellers go on to buy another place and a large percentage finance their next home.
Rising Interest Rates a Double Whammy For Sellers
So not only does the buying pool shrink for your existing home, but the borrowing costs on your next home increase as well. You now qualify for less on your next home, and if you do still qualify for more, that payment will cost you much more. Over 15 or 30 years that extra payment per month adds up.
Waiting to sell and hoping to get an extra $10,000 on your existing home might cost you $50,000 in higher interest payments. And when rates rise, the appreciation of homes may slow as well because fewer buyers can afford higher payments.
Right now we sometimes have more than one buyer for many homes on the market. When you start limiting the buyer pool with higher rates, this could change. It may take some sellers longer to sell. Some sellers may have to reduce their price when the buyer pool shrinks.
There are a lot of wildcards when it comes to interest rates. We won’t even get into inverted yield curves and other factors. Suffice it to say that the world market is complicated and rates could rise one of these days. Near zero percent interest rates by the Fed is not normal and will end someday.
Sellers tend to hold onto their property because they feel it may gain in price. Chances are, if your home is going up in price, the next one you’re going to purchase is too. And if you’re going to finance it, there’s your triple whammy.
Bottom line is waiting may cost you more money than you’ll save by eking out those gains. Nobody blames you for getting all you can for your home; you should. You just may want to weigh what waiting will cost you if you’re going to purchase another home to replace the one you’re in. You also must weigh the carrying costs.
Some sellers are hoping their home goes up $10,000 in the next year, but between utility bills, property taxes, maintenance, HOA fees, mortgage payments, home insurance, flood insurance, etc. they find it costs them much more to carry the home than the predicted gain. And that’s assuming an air conditioner or roof doesn’t go bad.
If you’re considering selling, find out how the Ellis Team puts an additional $11,892 in your pocket at closing versus the average Realtor. We’ll be happy to sit down with you and show you how much to expect. We can even help you find your next home if you’re staying in the area.
If you’re a buyer and would like to search the MLS like a Pro, visit www.LeeCountyOnline.com You can save your search and the system will email you new homes entering the market as well as price changes when they occur. You can setup multiple searches too.
Good Luck and Happy Home Selling-Buying!
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You can always call us at 239-489-4042 and speak with us to find out how we can sell your home or find your dream home in SW Florida.