The fact that interest rates are on the rise isn’t news – it’s being talked about everywhere as the first step in reigning in the highest inflation rate we’ve seen in decades. And the Federal Reserve isn’t done yet.
They’re predicting 6 more increases by the end of the year, which will have a significant impact on housing affordability.
The effect on buyers trying to purchase a home is pretty obvious – the higher the interest rate, the higher the payment.
I find most people buy homes the way they buy cars – it’s all about the payment.
That is, they set a desired payment range, know how much cash is available to them for down payment and closing costs and come up with a corresponding price range for their new home.
Unless the buyer increases the payment or comes up with more cash, it’s the price range that suffers when interest rates rise.
The principal and interest payment on a $500,000 home with 20% down at 4% is $1910. That same payment at 5% interest only buys a $445,000 house. Ouch.
But the effect of rising rates doesn’t only affect buyers, it impacts sellers too.
The higher rates go, the less people there are who can afford to pay top dollar for your home. Less competition means fewer bidding wars, resulting in lower prices and less control for the seller.
The bottom line? This is an extremely challenging market for buyers. Just keep your head down and keep at it, as waiting isn’t the answer. The key here is to be sure you’re working with an experienced agent who knows how to craft an offer in this kind of a market. That would be me.
And for sellers, you may want to consider putting your home on the market sooner rather than later as change is in the air!
Call me at 215-813-6655 or email Lynne@LynneKelleher.com so we can explore your options and come up with a plan that works for your specific situation. I’d love to meet you!