Rising Interest Rates
It’s True . . . Interest Rates Went Up!
So, what does this mean exactly?
The rise in interest rates can be domineering; when rates go up, buying power goes down. In addition, inventory across the country is lower than it has been in several years, which is resulting in bidding wars and an overall increase in prices. An increase in the average price of homes across the United States, when coupled with rising interest rates, could be a deal-breaker for some first-time home-buyers. Buyers who were already stretching to qualify for a loan and pull together the down payment could find themselves unable to buy the house they thought they could back in April. A rule of thumb holds that every one percentage point increase in interest rates reduces affordability by 10%, so the recent move in rates just made homes about 10% more expensive to buyers who need to finance their purchase.
However, “Just because it would have been cheaper to buy a home six months ago, doesn’t mean it’s not a good time to buy one now,” says Trulia housing analyst Jed Kolko.
Rates, currently at about 4.6 percent, have climbed a full percentage point since May – but they’re still lower than they were just two years ago and far lower than their long-term average of about 8 percent. “In the history of America, a 30-year mortgage at less than 5 percent is a gift,” says Mark Dotzour, chief economist at Texas A&M’s Real Estate Center.
A snapshot of interest rates over the last few months from www.bankrate.com:
Does this mean you should buy now?
It’s never good to make a hasty decision and buy the wrong house at the wrong time; however, interest rates are still considerably low and there is still time to leverage yourself. Plus, it’s getting easier to obtain a mortgage, buying is still cheaper than renting, and with prices increasing slightly, you won’t have to compete with as many investors.
Supply and Demand
The increase in buying over the last year will create an increase in inventory, which will result in a balance between supply and demand, ultimately slowing rising interest rates and causing more sustainable price increases. The Mortgage Bankers Association predicts rates will remain close to current levels through the end of next year.
According to the National Association of Realtors, total housing inventory at the end of May rose 3.3 percent, to 2.22 million existing homes available for sale, which represents a 5.1 months’ supply at the current sales pace, down from 5.2 months in April. Listed inventory is still 10.1 percent below a year ago, when there was a 6.5-month supply.
If you’re an investor – buy now!
If a sector of home buyers are knocked out of the buying market due to rising interest rates and slight increase in home prices, then the rental market will have a higher demand, resulting in less buying competition and a larger market of renters. If you are interested in purchasing an investment property, I can help. I can provide you with information on the local market and the best investment properties around. Don’t hesitate to contact me today at 207.415.8204 and experience the professionalism of an agent that works with the #1 Real Estate Company in the U.S.!
To really understand what’s happening in your local market and the effect of rising interest rates, you should contact your local Real Estate Professional. If you need the advice of a professional, but don’t know who to turn to, contact me today, and I will help you locate the right Real Estate Agent for you, no matter where you’re located. I have a network of real estate agents I work with across the country and even the world, and I would be happy to find the right one for you if you’re located outside of my locale.