In this short, there is a significant effect on a Buyer's purchasing power, when rates increase by as little as .5%. How might this affect you, if you're considering making a home purchase?
If you are looking to buy a home, the rise in interest rates can cause you to have to look at "less" house in size, price, and desired criteria, in order to stay within the budget you have set for your home purchase. A .5% rate increase typically means that, in order to keep the same payment, you would have to look at something that is priced 5% less from when the rate was .5% lower. For example, if you're looking to buy something that at 4.5% runs about $1600 per month for principal and interest, with 10% down - you could look at about a $350,000 home. If rates bumped to 5%, you would have to be in the $330,000 range, in order to keep the same payment. You would lose about $20,000 in purchasing power.
But, the rise in rates not only affects buyers but can potentially affect sellers. If there is a pool of buyers that are able to afford a $350,000 home, at the current rates and a seller's home is within that range, just a .5% could reduce the buyer pool for that home and potentially cause the seller to have to take less for the home, in order to accommodate the buyer pool. Of course, this is only one variable that needs to be considered. The supply and demand of homes at a given price point is another variable to consider, the potential supply (new construction), another variable. The availability of loan programs, along with many other considerations are all something to look at when making a decision on whether to sell.
We would love the opportunity to sit down with you and talk about your real estate holdings and help you determine what is the best course for you to take if you're considering buying or selling. Give our team a call at 719.357.5088.