Housing Interest Rates and Your Purchasing Power: The Bell has Rung!

Real Estate Agent with Asset Realty Group

You've already heard it, probably more than once--housing interest rates are moving up, but they're still in a very favorable range!  This is bringing buyers off the fence.  Availability of homes is still plentiful but the numbers are dropping.  Housing inventory has reduced to less than 6 months supply in most of the areas on the Eastside of Seattle. 

For every 1% increase in the note rate your purchasing power is reduced by nearly 11%Waiting for a lower home price with interest rates moving against you is a losing proposition. 

Last last year we were discussing non-jumbo rates in the high 3% to 4% range.  Now we see rates in the high 4% to 5% range.  Those clients who qualified to purchase a $450,000 home when rates were lower may now only be qualified to purchase a $400,000 home. The bell has rung, will you heed its warning?

If you qualified for the loan amount in Column A below with interest rates at 4%, what loan amount would you qualify for based on the higher rates of 5% in Column B or 6% in Column C?  This table will answer that for you.

              Column A                                   Column B                                     Column C
             4.00%                                        5.00%                                         6.00%
       (4.119% APR)                             (5.13% APR)                                  (6.142% APR)
        $ 200,000                                   $ 177,867                                      $ 159,257
        $ 300,000                                   $ 266,801                                      $ 238,886
        $ 400,000                                   $ 355,734                                      $ 318,515
        $ 500,000                                   $ 444,668                                      $ 398,144
        $ 600,000                                   $ 533,602                                      $ 477,773
        $ 700,000                                   $ 622,535                                      $ 557,402

Over the next couple of years and possibly sooner, this is what we are likely to see.  Experts are saying that we are heading into a period of much higher interest rates over the next few years as our Government continues to print money which will ultimately create an inflationary spiral.  What the Fed does to curb inflation is raise interest rates.  We have now bounced off the lows in the 40 year interest rate cycle.  You only know you've seen the bottom of the cycle when it has in fact reversed direction. The bell has been rung, will you hear it this time?

We are in a position to recommend some extremely well qualified mortgage planners to help you manage your purchase or review your situation should you wish to refinance.  The people we work with have consistently worked in this field for many years and are seasoned experts. Be sure to call on us if this applies to you.

Comments (4)

Tim Lorenz
TIM LORENZ - Elite Home Sales Team - Mission Viejo, CA
949 874-2247

Thank you for the blog it is time the buyers and sellers understand that the bell has rung.

Feb 19, 2011 05:20 PM
Richard Willard
Asset Realty Group - Bellevue, WA
Richard Delane Willard

Tim, of course, let's let them hear it again and again so they stop the procrastination.  Glad to hear your area has responded in January.  What does Dataquick charge you for their services?  Do you use them for identifying market segments?  Or, does your broker subscribe?

Feb 19, 2011 05:43 PM
Lottie Kendall
Compass - San Francisco, CA
Helping make your real estate dreams a reality

Very clearly stated and shown, Richard. I'm re-blogging, to get the word out to more potential buyers--they need to hear this. Thanks!

Feb 21, 2011 02:36 AM
Lottie Kendall
Compass - San Francisco, CA
Helping make your real estate dreams a reality

Oops-re-blog feature is down at present; I hope to come back to this and try again.

Feb 21, 2011 02:37 AM