Here’s Why Your Should Buy Or Sell A Home Now!

San Diego homeowners who’ve wanted to sell have loved the recent news of rising home prices (up around 20% from a year ago), easier lending terms for buyers and general economic improvement that encourages house hunting. But will rising interest rates can undercut home prices?

Like buyers, sellers need to get a move on before rising rates make buying a home more expensive. Sellers should be careful not to wait too long. Rising mortgage rates are hardly a crisis, as they’re still low by historical standards, but prospective sellers should keep the rate and price relationship in mind as they plot their strategies.

Historical Mortgage Rates

Historical Mortgage Rates

Unfortunately, it’s impossible to say the exact effect on prices of a 1, 2 or 3 percentage point rise in mortgage rates, as so many factors affect home values. But the principle is simple enough: Rising rates make monthly payments bigger, reducing the maximum buyers can spend. That, inevitably, affects prices to some degree.

Rising rates, of course, also have a psychological effect, causing some buyers to wait for rates to come down and making others give up the search altogether. Others may think they better “hurry up and buy” before rates go even higher. Recent data and trends suggest buyers are pulling back a bit now, disturbed by recent rate increases. But in coming months, many may change their minds, realizing that even if they missed the cheapest deals, rates are still low — and lower than they’re likely to be in a year.

This Mortgage Calculator can help you see the relationship between prices and interest rates.

Here is an example: 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 historical average rate, 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%.Mortgage-Interest-Rates-Round-Up-for-Saturday-August-101

If that seems surprising, 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.

As mentioned, this just illustrates the principle, and it doesn’t mean home prices would fall 18% if mortgage rates rise. For one thing, a seller needs only one buyer, and there may be plenty of others who can afford the home even with higher rates. After all, not every buyer applies for the biggest loan that would be permitted. Those planning to spend less than the maximum may still be able to afford the home with the higher payment.

Today, the would-be seller should be on the lookout for a sweet spot in market conditions. That will be the point at which home prices have gone up from today’s level, but mortgage rates remain low enough to bring lots of buyers into the market.

If price gains start to level off (which it seems like they are in the San Diego market), the seller should probably get the home on the market quickly, or rising rates could shave the sales price.

For more information on this topic:

619.384.2248
Ryan@RyanYourRealtor.com
Visit my Website: http://ryanyourrealtor.com
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