Your buying power goes down when interest rates go up

Your buying power goes down when interest rates go up. 

This past weekend, I had to have the "reality check" conversation with one of my buyers.  When we initially met, I had him go through the pre-approval process.  We also sat down for a consultation so we could talk about his needs and wants when it comes to buying his first home.  At the time, he seemed to get it.  A couple days later we were out pounding the pavement looking at property.  We found one home in particular that met every bit of his criteria.  He loved it.  So, I suggested we write an offer.  

Fast forward three days later.  I was sitting at my desk scratching my head wondering why I had not gotten a phone call from my client.  He told me that he wasn't interested in writing an offer because his "friends" told him to wait for the price to drop.  WHAT?!?!?!  Did he know that your buying power goes down when interest rates go up?  Yes, he knew that.  Why?  I told him that during our initial consultation.  Now, I know what you're thinking, interest rates are low and prices are affordable.  Very true, however, this "market of the moment" isn't going to last forever.  

I can appreciate that everyone has an opinion when it comes to real estate.  That's great that people are watching out for you.  They should, that's what family and friends are for.  What you have to remember is that you are living in the moment.  You know more about the real estate market because you are wandering through it.  If your friends bought during the height of the market, changes are they are upset with their situation and if you're parents are offering up info... well, buying a home today isn't like it was 30 years ago... things have changed.  If there's anything you get from this blog, it's this, your buying power goes down when interest rates go up. 

Needless to say several days later, after a few nights of sleep, my client did decide to write an offer on the house.  Unfortunately, I had to tell him that the house was in escrow with a cash offer.  It's all good.  There's another property out there.