Mortgage Interest Rates are Increasing Fast for Home Buyers. Now What?

Let’s first look at what is happening with mortgage interest rates?

If you are actively looking to buy a home, then you probably already know that mortgage rates spiked upward in November.  But if you are casually thinking about buying or selling at some point in the next year or so, this information might serve as a wake up call given the calm of the last few years.

Over the past 6 weeks, average mortgage interest rates went from historical lows to a level not seen in almost 3 years, since March 2014. Here’s a chart showing average 30-year fixed mortgage rates over the past 10 years.

While the interest rate spike in November was dramatic, the rate of increase has tapered off the past couple weeks. And of course, no one really knows where rates will be in the future.

So what does this mean to home buyers and sellers?

I’ll let a local real estate stats guru, Megan Aller, tell the story…
(I have tons of info like this to share, just let me know if you’re interested)

[Denver, CO. December 12, 2016]  As snow begins to blanket Denver, this is actually the calm before the storm. With 2016 drawing to a close, many consumers are already looking forward to see what the real estate market has in store for us in 2017. Early market indicators are pointing towards more of the extreme seller’s market we have been working in for the last few years. However, there is a Wild Card in the mix.

That Wild Card is interest rates. As prices continue to climb, it increases the likelihood of a consumer needing to use a loan to purchase that property. As prices go up and if interest rates also go up, the purchasing power of a borrower decreases. It’s not only buyers who need to be concerned with increasing interest rates, but also sellers. For sellers, with every hike in interest rates, their pool of potential buyers decreases, along with their ability to gain top dollar. Here is a quick example.

If a seller lists their home for $450,000 at a 4% interest rate, the buyer’s monthly payment is about $2,148. If mortgage interest rates increase to 4.5%, the seller would then have to drop their price by just over $25,000 to maintain the same amount of buyers in their qualified pool of purchasers.

In the chart above, if you’re a buyer and want to keep your monthly payment constant, an interest rate increase from 4% to 5% means your equivalent offer price drops to $400,000 from $450,000 to buy the same home with same monthly payment.

You can use this mortgage payment calculator to estimate how interest rates affect your purchasing power.

Okay, but what do I do now that mortgage rates are increasing?

There is no easy answer here!  It all depends on what you are wanting to accomplish.  However, generally….

If you are buying a home, your borrowing cost is going up and it may be cheaper to buy sooner than later.

If you are selling a primary residence to buy another one and plan to take out a new mortgage loan, then these rates will affect your purchase side and you may want to act sooner than later.

If you are selling a home, but do not need to buy, then increasing mortgage loan interest rates negatively affect your buyer’s purchasing power and they may not be able to afford that high price you want.  You may want to sell your home sooner than later.

But again, it all depends on what your goal is, and of course, what happens to mortgage interest rates in 2017. A mortgage loan originator is the best person to discuss mortgage rates and your specific financial situation. I know some great loan originators, just ask me if interested.

I’m happy to share my real estate knowledge if you are considering buying or selling real estate in Colorado and would like to discuss your specific situation.