Last year we warned about interest rates and what it could do to home buyers and sellers. Since that warning interest rates have climbed .82%. The consensus on the street is we’re not done yet. Today we see rising interest rates squeezing home buyers and lowering affordability which can ultimately affect both buyer and seller.
A simple rise in rates robs a home buyer of between 10-11% of purchasing power. In the example in the graph, a $200,000 home buyer before the rate increase now only qualifies for $180,000. Let’s say the buyer still qualifies for $200,000. Their monthly payment just went up $114.82. Nothing else changed. The purchase price is the same, the amount financed is the same. The only thing that caused that payment to go up was the interest rate. Over 30 years that increase adds up to $41,335.20.
Simply by waiting a year to purchase it cost a home buyer more payment or less house. When you combine that with home price increases, it’s a double whammy for buyers.
We’re not done yet. Experts are predicting rates to shoot up to 5% by the end of the year, and perhaps 6% by the end of 2019. Even if they only raise half of that, you can clearly see that waiting costs more than it’s worth. For home buyers, the time is now, and the sooner the better.
We have buyers just waiting for their lease to end. In some cases, it makes sense to break the lease and pay the penalty. Some apartments have a 1-month rental penalty. Other landlords charge much more, so it’s wise to look at your lease and consult with an attorney.
Right now, we have limited inventory, so homes go fast. As rates continue to climb, it will put more pressure on more buyers. The pace at which the market can appreciate will have pressure on it. If you’re a seller, you might want to think about listing now, for several reasons.
If you have a mortgage, chances you’ll get a mortgage on your new home. Waiting to sell your home will cost you too when you go get a new mortgage. Additionally, as rates rise, there will be fewer buyers that qualify for your home. Lastly, as buyers begin to qualify for less and move down a price bracket, listings may rise in your price bracket. When this occurs, price appreciation can stop.
If you’re waiting for prices to climb further, it’s a risky strategy. Sure, price may climb higher, but it may still cost you. You may not gain anything, and you’re taking a risk. It’s more fun to sell when inventory is low. And it’s more fun to purchase before rates rise much further.
Rates are still pretty low historically speaking. We’re still in the 4’s. I remember double digit rates. The point is, even though rates are low, why pay more than you need to? Next year, you’re likely to pay more. The economy is heating up, and this drives pressure for rates to rise.
You know you want a new home. The only thing holding you back is your home is still appreciating, and you don’t know where you’d go. Give Sande or Brett Ellis a call at 239-489-4042 Ext 4 and we can walk you through the steps of a possible move.
We can figure out how much you’d net on the sale of your current home, and what it would take to get you a new home. We can discuss financing options and how we’d structure the deal to make it work for you. You never know until you speak with us.
Or, you can search the market online at www.LeeCountyOnline.com We’re here to help you today, tomorrow, or down the road when the stars align for you. We just want you to have the best information available, so you can make the best decision for your family.
Always call the Ellis Team at Keller Williams Realty Fort Myers & the Islands!