Rising mortgage rates motivates home buyers in position to buy to do so sooner rather than later. In a rising rate environment like we are in right now, It costs home buyers in two ways.
First, their purchasing power goes down about 10-11%. Let’s say a buyer picks out a home at their max budget of $1294/mo. This is the figure their lender approved them for based upon their income of $51,765 Not long ago rates were at 3.625% Today they are at 4.25% and according to Ruben Gonzalez, staff economist at Keller Williams, rates should gradually increase throughout 2017.
If they go up another .4% or so, we’ll have had a 1% increase in a relatively short period of time. Nothing has changed for the buyer. If they were maxed out for a home at $200,000 a few months ago, they are now maxed out at $180,000. Their job didn’t change. Their finances didn’t change. The only thing the changed was interest rates, so they just lost 10% purchasing power by waiting.
Rising Mortgage Rates Motivates Home Buyers
If the selection of homes didn’t look enticing at $200,000, it will look even worse at $180,000. Waiting may have just cost this buyer a chance to buy a home at all.
Secondly, if this buyer was not maxed out at $200,000, buying the same home will now cost about $50 more per month. Over 30 years that equates to $18,000 in extra interest payments simply because rates went up.
Rates are still historically low. Many people remember back to double digit rates or even worse. To think that we’re even warning people about rates in the 4’s is comical, except for the fact that it’s real money. Home prices are much more today than they were when rates were in the high teens. So many things cost much more today, like gas, health care, groceries, etc. than they did decades ago. Even though rates are low by historical standards, we now have to stretch that money further because everything else has gone up so much.
It’s hard for young people to scrimp and save money for a down payment. Add in homeowner’s insurance, rising rates, and high costs of everything, and we see the pressure on first-time homebuyers today. First-time home buyers are a springboard to move-up buyers, so if we eliminate first-timers we one day won’t have move up buyers.
Don’t think that rising rates only affect first-timers. It affects all segments of the market. It may help cash buyers in that rising rates pay greater returns on savings, but it still affects all price ranges as it trickles up sooner or later.
If you’re a seller, you’ll notice someday there are less buyers for your home than there once was simply because less qualify at the higher rates. Less buyers can be a drag on home prices. If rates keep rising it could take some steam out of the housing market. If you’re waiting for higher prices later, you may be sorely disappointed if they don’t rise at the pace you’re expecting.
Many sellers replace their current home with another home, and if they’re getting a new mortgage on that home they may be in for some sticker shock when they get that new loan. It can cost you buying your next home, and selling your existing home. Rising rates are no fun for buyers or sellers. Low rates are one of the factors that have propelled the real estate market.
We feel the SW Florida real estate market is fairly valued. We don’t see risk of decline like we had back in 2005. However, rising rates may damper future gains. Even though wages may increase, rising rates may offset those gains and help keep prices steady instead of rapidly rising. In other words, if you’re waiting to make a move, be warned. Whether you’re a buyer or seller, the risks are the same. It will cost you to wait!
Feel free to search the MLS like a pro at www.Leecountyonline.com for your next home, or just get an idea of what homes are selling for. To talk with a real Pro, Always call the Ellis Team at 239-489-4042 We’ll advise you so you can make a great decision for your family.