Rates Have Gone Up, How Much Buying Power Did You Lose?

Rates have moved above 5% again... how much buying power did you just lose?
Buying power?  What do you mean?

Your Buying Power is about how much you can afford and at what price.  The best buying power is when you can buy as much as you want for as little as you can.

Huh?

Let's put it to numbers...

At a 4.5% 30 year fixed mortgage with 5% down, you could buy a house at $250,000 and pay a mere $1203.38 a month (not including taxes and insurance).

At a 5% 30 year fixed mortgage with 5% down, you could buy that same house for $1274.95 a month and a 5.5% rate at $1348.50 a month.

But Donna, I can only afford the $1203.38 a month.  That's what I set my budget at a year ago when I started looking...

No problem...  If you get a 5% rate and buy a house at $236,000 you can have a monthly payment of $1203.55.  If you continue to wait and get a rate of 5.5%, you can buy a house at $223,000 and have a payment of $1202.86.

Problem solved!!

But Donna, I don't like any of the houses in the lower price range which is why I've been looking in the higher price range!!

And?  What do you want me to do about it?  I've shown you house after house... perfect house after perfect house... you continued to "wait and see" and drive the parking lot... You've lost your buying power and there's nothing I can do about it.

What are some other options?  Put more money down. If you got a 5% rate, and put 10% down on a $250k house, you're payments would be $1207.85.  Right where you want to be.

But Donna, I don't have 10% to put down...

You see how this can go in a circle?  The buyer will continue to wait to see if rates come back down, and when rates hit 6%, their buying power is only $211,000 for the same payment around $1200.  They lost almost $40,000 in buying power.

When you deal with higher price ranges, you deal with higher consequences. Here's an example staying below jumbo loan amounts of $417k so interest rates can compare apples to apples.
If you're looking at $439,000k at 4.5%, you're then looking at $414,000 with 5%, $392,000 with 5.5%, and $371,000 with 6%.  Just because you waited to see, and rates jumped up, your buying power decreased and decreased pushing down into a price range where you don't like what you can get.  You lost $68,000 worth of buying power to keep the same payments!

Are rates going to hit 4.5% again?  Who knows... probably not.  Will rates hit 6% again?  Yes. When?  Who knows, but probably sooner rather than too much later. Just over one year ago, in November of 2008, rates were at 6.75%.  Why do buyers think rates won't hit 7% again like in 2002?

If you don't want to lose your buying power throwing money down the drain, you need to make some decisions!

**Are You Packed Yet?**

Donna Harris, REALTOR®
RE/MAX Austin Skyline
www.DonnaHomes.com
Donna@DonnaHomes.com

Austin TX Real Estate and the surrounding areas of Lakeway, Bee Cave, West Lake Hills, Cedar Park, Round Rock, Spicewood, Circle-C, Steiner Ranch, and everywhere in between... Hill Country Austin TX Real Estate and beyond. Whether you're buying or selling an Austin home, I'll be with you every step of the way. 

For real time Austin TX listings, click here.

** #1 Agent in my Office for all of 2008 **

Copyright© 2009 By Donna Harris, All Rights Reserved. You may re-blog with links back to this post.
* Rates Have Gone Up, How Much Buying Power Did You Lose? * was first published on donnahomesblog.com