Should we wait to purchase or sell my home in Hawaii?
Occasionally I hear that people are asking themselves whether they should wait to purchase or sell their home now. With the media focusing on the U.S. mainland's subprime fallout, distressed properties (pre-foreclosure, short sale, foreclosure, and bank-owned properties), rise in fuel prices, the credit card crunch, inflation and future Hawaii tourist spending patterns, this is a natural question.
Whatever your crystal ball tells you, one thing that we can predict is how interest rate affects payments and purchasing power. We need to understand this effect even if someone has "all cash to purchase" because neighborhood values of homes or "pricing" are affected by overall consumer budgets and their buying power.
The table below shows mortgage (principal and interest) payments on a $400,000 loan. A 1% interest rate hike drives your monthly payment 11% higher.
| Rate | Payment | Increased Payment Amount since rate increased from 5.5.% | % Increase in Payment since rate increased from 5.5% |
| 5.5% | $2271.16 | ||
| 6.5% | $2528.27 | 257.11 | 11% |
| 6.875% | $2627.72 | 356.56 | 16% |
Let's look at the effect of interest rate increases on your buying power. The table below assumes you can afford $2500/month on your mortgage (principal & interest) payment. A 1% interest rate rise reduces your buying power nearly 10%.
| Rate | Loan Amount | Decreased principal loan amount since rate increased from 5.5.% | % decrease in loan amount since rate increased from 5.5% | Payment |
| 5.5% | $440,000 | 2498.27 | ||
| 6.5% | $395,253 | 44,747 | 10% | 2498.27 |
| 6.875% | $380,295 | 59,705 | 14% | 2498.27 |
From the analysis above, if you or someone you know is waiting for home or condo prices to drop, a rise in interest rates could easily offset that price drop.
Ask yourself the following questions: What is more likely to occur in the next year; mortgage interest rates increases by 1% to fight inflation or a 10% drop in home/condo prices? Will lenders put in place stricter underwriting guidelines for borrowers; i.e., requiring more down payments, higher credit (FICO) scoring, and lower debt-to-income ratios?
If you're getting ready to relocate to Hawaii, buy your first home or are selling and trading up, contact Ronda Ching Day @ 808-387-1474 or AlohaRonda@gmail.com for a no obligation consultation.
Ronda Ching Day sells Hawaii Real Estate
Comments(0)