Most prospective home buyers are aware that interest rates have been slowly creeping upwards for a couple of years. While still at historic lows, the upward trend is expected to continue and with each increase, your buying power is lessened – unless, of course, you will be paying cash for your home.
Consider a couple who have been saving for a year for their downpayment. When they started saving in September 2017, the 30-year fixed rate was 3.81%. Their mortgage broker told them at that time that they could afford a mortgage of $400,000. Today, with the average 30-year fixed coming in around 4.875, the couple can only afford a $350,000 mortgage, assuming the same income and financial profile as the previous year. What makes their situation even more bleak is that while mortgage rates were going up, so were home sale prices. So $350,000 today only buys you what may have been selling for $300,000 a year ago. When you compare the couple’s buying power last year with this year, they have essentially lost 25% of their buying power, given the mortgage rate increase and the market appreciation.
If the couple already owns a home and will be selling their current home to purchase the new one, perhaps the market appreciation of their current home will offset the higher price of the new home. But for first-time homebuyers, this is not the case.
If you are holding off on purchasing a home because you are trying to save a larger downpayment, it may be worthwhile to speak to your lender to see if they have programs for buyers with smaller downpayments. It may be financially advantageous to act sooner rather than later. Consider speaking with at least two different lenders, with one being your own trusted bank and one being a mortgage company who may have a broader portfolio of offerings. And ALWAYS consult with a good financial advisor for expert advice on your particular situation.
If you are holding off on purchasing a home because you are waiting for the perfect home and still haven’t found it, be sure you are considering the impact that both rising interest rates and rising prices could have on your purchasing power. Your chances of finding the perfect home may shrink even further if what you are seeking is no longer in your price range. Consider what house traits are truly most important to you and whether or not you can improvise or sacrifice some of the other features.
As always, I am happy to assist you with your purchase. Please contact me and let us know what you’re looking for. It would be my privilege to represent you at no cost to you.