Welcome to my first blog post. Today I want to talk about rising rates and what that means for buyers and sellers.
The average interest rate in 2021, according to bankrate.com, was 2.96%. As of 7/08, it was 5.67%. While the rates topped out at 5.91% in June, the expectation is that the Federal Reserve will raise its rate as much at 75 basis points again, which would put upward pressure on rates heading into August. This is a giant swing that has cratered buying power by 25%.
If you are looking to buy, and believe that rates will eventually lower, now is the time to strike. We have begun to see DOM (days on the market) shoot up. In January, it was unheard of for a house to be on the market for more than two weeks. Now, it is the norm, as seller expectations have not coincided enough with the drop in buying power due to interest rates.
Here are two examples of how purchasing power has shifted:
|Purchase Price||Mortgage @ 20% down||Rate||Monthly Payment||Est Property Taxes|
|$1,062,000||$800,000 (same down)||5.25%||~$4,418||$10,620|
|$2,124,000||$1,600,000 (same down)||5.25%||~$8,836||$21,240|
Here’s the official “I’m not a mortgage lender; please talk to yours” portion, but hear me out. The housing market is currently listing. Any rate increase would put buyers firmly in the driver’s seat regarding price. I do not believe that rates will skyrocket. However, I think they will find a place around 4.5-5% over the next year. That means now is the perfect time to look into purchasing a house and utilizing a tool like adjustable rate mortgages (ARMs) to get a more palatable mortgage rate.
If you have any questions or thoughts, please let me know! I also have access to great mortgage people who can discuss these opportunities more in-depth!