Here’s how rising rates affect affordability and purchasing power.
What’s going on in our real estate market? Some properties are sitting on the market longer than expected, and others have even had to reduce their prices. Today we want to explain why this is happening and what it means for you.
One of the main causes of our shifting market is rising interest rates. Any time rates increase, buyers need to pause and adjust. Interest rates dramatically affect purchasing power, so many buyers need to get requalified by their lenders and reexamine what they can afford.
If you look at the chart at 1:27 in the video, you can see how interest rates affect purchasing power. Let’s say a buyer wants to keep their monthly payment around $4,000. For a 30-year-fixed loan with 20% down, this buyer could buy an $880,000 home with a 3% interest rate. At our current rate of 5.25%, this same buyer can only afford a $708,000 house.
“Any time rates increase, buyers need to pause and adjust. ”
Meanwhile, the chart at 2:18 in the video shows how rates affect your monthly payment. If you purchased an $800,000 home with a 30-year-fixed loan with 3% rates, your monthly payment would be $3,631. If you buy the same house with a 5.25% rate, your monthly payment would be $4,467.
As you can see, many buyers will need to reevaluate their positions. If you’re looking to sell, don’t freak out. There are still plenty of qualified buyers looking to purchase homes. While some people may be pushed out of your price range, others will be pushed into it. While the market may not be as crazy as it was, it will remain strong.
If you have questions about today’s topic or anything else, please call or email us. We are always willing to help!
