What happens to my ability to buy when the rates go up?

Real Estate Agent with Coldwell Banker Bullard Newnan, Peachtree City, Atlanta Metro Broker GA: 415935

Friday's Wall Street Journal was the one to reed if you were interested in the the next days' comentary about why the rates didn't go up and when might they?  Economists vary as to why the rates have not gone up as of yet, but most agree that they will go up soon.

Federal Reserve

Every Tuesday morning I get together with a group of outstanding agents interested in learning more, being more efficient and most importantly, serving our clients better.  Generally we discuss in depth the process of real estate from every angle you can imagine.  This quarter we are focused in on the buyer process and this morning we talked about the importance of beginning the process with lender approval and the 1% - 10% rule.  What is this?


A:  Every 1% change in interest rate affects your buying power 10%.


So, if you are able to get a 4.5% 30 year loan today and are able to afford about $1000.00 a month on your payment you can afford to buy about $200,000.00 worth of home.  Therefore we might look at houses between $180 and $205,000.00 let's say.  But, if that rate were to go up say by just 1%, in order to afford this same monthly payment, you now can only afford a house at about $178k.  If the rate goes up 2% that drops even more to $160K about.


Given today's market of low supply and high demand, and the immediate short term forecast of continued increasing prices at a time when the Fed is considering rate increases, you can quickly see how crucial it is to get in and buy now.  That is if you plan to buy between now and say the next year or so. If your going to buy anyway, buy now to get more house for your buck!  And for sellers:  put it on the market now with excellent odds of selling, the pool of buyers is terrific right now in our local economy, but the rate increase could dampen spirits quickly.

Posted by

Scott May, REALTOR, Certified Residential Specialist at Coldwell Banker Bullard, Newnan GA. (770)-254-0079 (my cell: 509-863-5362) Trusted Proactive Real Estate with more than 11 years of experience helping good people buy and sell homes.  Member: Newnan Chamber of Commerce.        WWW.ScottMayiHelpyou.com   

Comments (1)

Sam Shueh
(408) 425-1601 - San Jose, CA
mba, cdpe, reopro, pe

Last time they increased sometimes more than 2 pts in one day.... It was 16.5% and 2% points for 30 year mortgage that brought almighty US housing industry down. The good thing many retiree retire earlier and get 7-8% dividend on notes and most paid off their mortgage in about 10 years.

Sep 27, 2016 09:43 AM