Mortgage Rates on the Rise
At the recent National Association of Realtors midyear conference, the general consensus was that this is a great time to buy.
“Now is absolutely the best time ever to purchase real estate. Consumer confidence is increasing, the housing affordability index is the best it has been in 40 years, and interest rates are hovering around 5 percent” shared one of the industry speakers.
In terms of interest rates, virtually all of the speakers predicted that interest rates would be increasing soon. Just in the last week, the average 30-year fixed mortgage rate rose to 5.65%, according to Bankrate.com. Mortgage rates are still below 6% and shouldn’t pose a problem for well-qualified borrowers, and they are still less than what we were seeing a year ago when the average 30-year fixed mortgage rate was 6.52%.
However, as mortgage rates increase, home affordability will go down.
For example, on a $200,000 loan, an interest-rate increase from 6 percent to 7 percent will result in an additional $47,345 over the life of a 30-year loan. This means that a one-point interest-rate increase will cost the buyer an additional 20.4 percent in interest payments. If interest rates increased from 6 percent to 8 percent on a $200,000 loan, the increase in interest would cost the buyer an additional $96,632 over the life of the loan. In other words, the buyer would pay more than 41.3 percent in additional interest.
While prices may still be falling in some areas, in most places the amount of inventory is starting to shrink. As the inventory declines, prices will stabilize. The probability that prices will decline an additional 20.4 percent to 41.3 percent is highly unlikely. On the other hand, the probability that interest rates will increase appears to be quite high.
If you are in the market for a new home – whether you are moving up, downsizing or are a first-time home buyer, consider the impact on your purchasing power if the mortgage rates continue to climb over the remaining months of this year. Perhaps it’s time to make your move -