Should we let interest rates determine whether we purchase or not? Let’s look at rates and their effect on the Real Estate market.
When I started in the industry rates were 18-20%! Closings occurred with owner financing/land contracts almost exclusively. It was a slower market but by no means completely dead. On the contrary rates dropped all the way down to 2.75-3% in 2009 and the market was the most challenging of my career! In the mid ‘80’s rates dropped from 10+% to 9.75% and the market was so explosive that we couldn’t keep up with it(paperwork, appraisals, funding). Currently the Real Estate market is characterized as ”average” and was that way ahead of the recent rate increases from 4.5% to 5%. Will the 5% mortgage rates have a dimming effect on purchases? As I have experienced, rates ALONE do not control our Real Estate market. There are always other factors to consider.
Affordability is certainly one of those factors. You have to have income ratios to support a certain payment and if the difference between 4.5% and 5% pushes you beyond those ratios you will have to purchase for less. As an example; a monthly payment for a 4.5% interest rate mortgage of $300k with principal,interest, taxes and insurance is $2,192. At 5% it’s $2,280, about a $90/month difference. What does it mean in terms of purchase price? You would have to look at places for $13,000 less.
Another factor that has always driven our market is consumer confidence. Personally I have considered this index as the most consistent and telling of our business. You’re a consumer, how’s your confidence? How do you feel about your job and income future? That’s a huge driver! From January 2014 to today it has risen over all with spikes and dips along the way. The high this year was in January and it has declined since. The Real Estate market has been right in line as the 3rd quarter market finished as relatively stagnant with prices leveling off and market time rising.
World and national “events” have had a factor too of course. Military conflicts, terrorism, economic, political and natural disasters, etc. have all stymied the Real Estate markets respectively.
The point is, don’t let rates rule your move. Rate yourself and if it’s affordable and you are confident, GO FOR IT!