How May Rising Interest Rates Affect Real Estate Sales This study is done based on a $375,000 sale price with 20% down ($75,000). It is assumed that the buyer has no trouble qualifying as the rate increases. Cost/$1,000 Rate Payment $ Increase in Payment $6.00 6% $1800.00 $6.08 6.125% $1824.00 $24.00 $6.16 6.25% $1848.00 $24.00 $6.24 6.375% $1872.00 $24.00 $6.32 6.5% $1896.00 $24.00 $6.40 6.625% $1920.00 $24.00 $6.49 6.75% $1947.00 $27.00 $6.57 6.875% $1971.00 $24.00 $6.65 7% $1995.00 $24.00 In the above instance the overall payment increases a total of $195.00 as the rate increased from 6% to 7%. This next instance shows a similar study. In this case though it is assumed that the buyer can only qualify for a monthly payment of $1,800.00 a month (without taxes and insurance). Cost/$1,000 Rate Payment Mortgage Amount $6.00 6% $1800.00 $300,000 $6.08 6.125% $1800.00 $296,050 $6.16 6.25% $1800.00 $292,210 $6.24 6.375% $1800.00 $288,460 $6.32 6.5% $1800.00 $284,810 $6.40 6.625% $1800.00 $281,250 $6.49 6.75% $1800.00 $277,350 $6.57 6.875% $1800.00 $273,970 $6.65 7% $1800.00 $270.680 In the above instance it is assumed that the down payment of $75,000 stayed constant. The buying power of this buyer fell almost $30,000. If the buyer cannot come up with more down-payment the price of the house they are buying would have to fall to $345,680. If the down payment stayed at 20% the price would fall to $338,320 since the buyer would only put $67,670 down. The reason for this study is to get a better understanding of the perils involved in a real estate market that is experiencing rising mortgage rates. This is not intended to force prices down, nor scare sellers into taking less than they desire for their home. It is intended to give the seller a better understanding of market conditions today and in the near future. Depending on each sellers individual financial position and each sellers individual reason for selling at this time, the information may assist in helping the seller decide whether they should accept an offer today or wait for something better. It also is important for buyers to understand how interest rates will effect their future decisions. As rates rise, monthly payments increase also. Without a price drop that means a buyer may be priced out of the market. A buyer must make a decision as to when is the interest rate and house price at the optimum number to make the most sense to purchase. With the present low rates and recent home prices experiencing a correction this may be a good time to consider a purchase. In previous times of market fluctuation we saw instances where accepting or declining an offer had both positive and negative results for both buyers and sellers. No one can predict the direction that the real estate market will take over the next few months but having a variety of information will give everyone the confidence to make an informed decision.