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

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.