Timing the Real Estate Market? Don't forget the impact of rising interest rates.
This is a great post by Wendy Cutrufelli, who vividly demonstrates of the buying power. Sometimes, Buyers do not see a danger of the rising interest rates in order to afford a dream home.
Are you trying to time the real estate market? Don't forget the impact of rising interest rates.
Many home buyers are struggling with the decision to purchase. Are home prices at the bottom? Will they decline further? Should we buy now or wait? But there is another factor that many home buyers fail to consider when making their decision to buy or wait, the impact of rising interest rates.
Mortgage lenders issue their loan approvals based on a Qualifying Monthly Payment which is typically the maximum payment at which the lender will provide your mortgage financing. The qualifying monthly payment is on a seesaw between interest rates and home prices.
As interest rates rise, you will have to look at lower priced homes to qualify for your mortgage financing.
Let me give you an example, if you currently qualify to purchase a $430,000 home at an interest rate of 4.50%, the chart below demonstrates the loss of home buying power that results from rising rates.
An approximate "rule of thumb" to remember is that a 1% rise in interest rates equals a 10% loss of buying power.
Interest recently rose almost 1/2% in a short two weeks. Armed with your new Rule of Thumb, you know this results in a 5% loss of purchasing power. Does that mean you should run out and buy a home RIGHT NOW? That entirely depends on your price range and local real estate market. In some price ranges and markets, the home prices have not only stabilized but are starting to rise.
If you are a buyer in Contra Costa county of Northern California and DON'T KNOW if your price range has stabilized, sign up to receive a Buyer's Market Report and find out. Don't get hit with the Double Whammy of rising prices and rising interest rates.
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