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How Rising Mortgage Rates Affect Buying and Selling Real Estate

When it comes to real estate, money is our primary concern. We’re always hunting and waiting for the best deals possible, and often enough, we can track local market trends to map out the best time to either buy or sell. For this month, we’re focusing on mortgage interest rates. In the last year, real estate experts and industry leaders have been talking about rising interest rates (and how they affect real estate). Many of us remember the housing bubble, where property values plummeted and interest rates fell to an all time low. Now that the national economy is recovering, property values are back on the rise, and interest rates aren’t far behind. Before the real estate bubble in 2006, interest rates were hovering near 5-6%. Now, they’re re-climbing past 4% (on a 30 year fixed mortgage), and experts are predicting they’ll reach 5% by next year.

Though a 1% increase doesn’t seem like much on paper, in real estate, it represents 10% of a buyer’s purchasing power. For sellers, that means buyers can afford less. As a result, buyers can’t pay top price for a home. Some homeowners might react to the changing market and price their homes a little lower than market value to attract a buyer’s attention. In combination, home values begin to drop again, and the cycle continues.

Mortgage Interest Rates

How Much Can You Afford in Montgomery County?

Let’s take a look at an example: A buyer was approved for a $600,000 home (assuming they put down a 20% down payment). With each 0.125 percentage increase in interest rates, that same home buyer’s purchasing power drops $8,100. By next year, the same buyer will only be able to afford homes priced around $551,400 (if rates rise as expected).

For buyers, this means you can only afford lower priced homes (as interest rates climb). For sellers, this means buyers no longer possess the ability to purchase higher priced properties. In total, rising mortgage rates and rising home prices are harming today’s affordability.

How to Offset Rising Interest Rates

For buyers, consider saving up more money and placing a higher down payment on the house you want. A bigger down payment means you will have paid more into the house (increasing your equity) and will help reduce your interest rate on the mortgage loan. If you find yourself approved for a lower mortgage, you can choose to wait out the market (though rates aren’t expected to fall for a long time) or you can lower your sight — i.e. to lower priced homes.

Should I Buy or Sell Now?

Both buyers and sellers should jump onto the market today. With low interest rates, now is still a good time for buyers to be looking for their next dream house. For sellers, it’s the perfect time to sell for a good value and still attract buyer attention. If you’d like to learn more about the current state of the market, schedule a consultation with us and we can help map out a timeline for you to either buy or sell your house.

Schedule a Consultation With Us Today!


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