Everyone in the market knows that the interest rates have gone up dramatically the last six months. This sadly had devastating effects on home buyers that were at the lowest buying range (of about $400,000 and less).
There is a rule of thumb that says for every 1% increase in interest rates someone pays, they lose about 10% of buying power in order to keep the same monthly payment. For example, If a buyer wants to buy a home for $500,000 and it is going to cost them $2,000 per month for the mortgage payment, if interest rates go from 5% to 6% then to keep the $2,000 per month payment would only allow them to buy a home for $450,000. In a seller’s market that drop has changed whether many buyers are able to afford a home with the number of beds they need for their family, to which neighborhood and/or school district they can buy in.
So are interest rates too high today? The short answer is… not historically. They are much higher than they were but they were at historical lows for a historically long period of time. If the Pandemic hadn’t hit in 2020, there is very likely they would have been raised much earlier. Look at the graph of historical interest rates and you can see that your parents probably bought their houses at much higher rates.
Because there is no economic reason to lower interest rates again to below 5.5% you should not plan on waiting for that to happen if you want to buy a home this year. The market still has incredibly low inventory (with nothing changing there in the future) and the nation’s largest generation of homebuyers coming of age. So waiting to buy is only going to make you pay more money for a home in a seller’s market. We recommend you buy now and if interest rates go down, then you can refinance and capture the lower rate. If they go up, then you’re paying less than those who waited to buy.
Let us know if you are ready to start searching for your dream home and we can help you get pre-approved for a home loan. You can contact us here.