How will rising interest rates impact my purchasing power?
Many of our clients who intend to purchase a home this year have expressed a concern about where housing prices will go over the next twelve months. They are often fearful about purchasing their next residence “before the market hits rock bottom”. This is a valid concern and it’s definitely something to consider if you’re looking to get the best price on your next home purchase. Unfortunately, nobody really knows what will happen with housing affordability and home prices as we move forward. If there was someone out there who could accurately predict the market 100 percent of the time, they’d have the “Midas Touch” for real estate and there would be no reason for them to share their predictions with the general public. The fact of the matter is that timing the market for your next purchase can be next to impossible and quite dangerous.
The good news is that housing affordability is and has been at an all time low since the recession. Almost anyone who makes a real estate purchase today and who plans to stay in their next home for a few years is making a good financial decision. While we cannot predict where real estate values will go in the next four to five years, we can count on mortgage interest rates going up. The real concern for a home buyer in today’s market should be the interest rate they will receive on their next home mortgage. Just a small increase in interest rates can devastate the purchasing power of a buyer and it can often greatly outweigh the benefit of a small decrease in housing values. An example of the impact that interest rates can have on your mortgage payment and the total amount of interest paid on a home with just a small 1 percent increase in interest rates can be seen in the chart below.
As you can see, your true concern in purchasing a home should not necessarily be whether you purchased a home at the bottom of the market but rather what your interest rate will be when you close on your next home purchase.
Our advice to our clients is to not try to predict where the bottom of the market is but to act on the tremendous advantage of obtaining a lower interest rate. As we’ve tracked housing values in the Greater Spokane area, we’ve noticed many strong indicators that the market has begun to stabilize. This means that we’re not likely to see housing values drop any further as we move forward with recovery. While a stabilizing market doesn’t necessarily mean that we’ll return to the sky high real estate prices that we all saw previous to the crash of 2007, it is a good sign of a healthy real estate market. And what typically follows a healthy market is a rise in housing values. This is why we’ve started focusing on interest rates. All of the lending consultants and mortgage professionals that we network with have advised us to move on the opportunity of lower interest rates while they’re still around. They’re all in agreement that rates will also begin to stabilize and many of them believe it will happen before the end of the year. This is why we are advocating making a move now before your purchasing power diminishes. With low interest rates and outstanding housing prices, we’ll likely never see a better time to purchase a home in our lifetimes.
For more information on housing affordability and interest rates, please contact us on our website at:
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