Buy or Sell NOW
Real Estate and Mortgage market analysts Jeff Brown, writing in The Street (www.thestreet.com), tells both home buyers and sellers that now is the time to take action for any home buying or selling, and to do so before the market changes.
In truth, any urgency for action will fall directly in the lap of any potential homebuyer, which we will see from Brown’s calculations below, but will not be a pressing issue for sellers under current market conditions. Brown’s reason for action…rising mortgage interest rates.
Indeed rising rates can make the cost of purchasing a home greater for the buyer, thus potentially limiting the quality of the home acquired, or hindering the purchase altogether. However, rising mortgage interest rates may slow the current quantitative pattern of home price increases, but they are not likely to stop the price jumps unless we’ve reached the top of the current market surge, and there’s no indication that has occurred.
At present year-over-year national median existing-home prices have increased by 13.7 percent with some metro markets seeing gains of over 20 percent.
Brown rightly notes that rising mortgage rates can negatively impact potential buyers. He draws his figures from the Maximum Mortgage Calculator and looks at the price/rate relationship. Rates have in fact nudged up again and Brown points out that rates up to 6% are closer to normal market rates. He states:
“With the default inputs, a person with a $4,000 monthly income could afford a monthly payment no higher than $805. That would support a $134,267 mortgage at a 6% rate. Change the rate to 4.5%, about today’s level for the 30-year fixed-rate loan, and the maximum mortgage jumps to $158,876.”
“So, if rates were to rise from today’s 4.5% to 6%, a level that has been common in the past, this buyer would have $24,609 less to spend. Looked at another way, a 1.5 point increase in mortgage rate would reduce this buyer’s buying power by about 18%…note that raising the rate to 6% from 4.5% is a 33% increase, producing a much larger monthly payment for a given loan size.” Rising home prices and mortgage interest rates can most definitely impact potential home buyers.