Charlottesville Homes For Sale | How Do Interest Rates Affect Price?
Buyers and sellers alike have been keeping a close eye on interest rates. Rates are still low by historic standards, but the reality is that they are slowly creeping up and many experts predict that they will be up one to one and a half percent by the end of the year. What does this really mean to you if you are considering purchasing a home?
A ½% increase in interest rate may not sound like much but it is roughly equivalent to a 5% increase in price. It becomes obvious when you compare the payments.
If you financed 100% of the cost of a $250,000 home at 4.5% interest for 30 years, the payment would be $1,266.71 per month. If the mortgage rate went up to 5%, the payment would be $1,342.05. If the home increased 5% in value, the $262,250 loan at the lower 4.5% rate would have payments of $1,330.05.
The two payments are close enough to justify the statement that a ½% change in interest is approximately equal to 5% change in price.
Each time interest rates go up, fewer people can qualify to buy a seller’s home. The mortgage rules that went into effect this year require buyers to meet specific payment to income ratios. As demand picks up for the seasonal market, most experts expect rates to increase.
Buyers will be doubly challenged in the current market because prices are rising (NAR reports 11% last year) along with the anticipated mortgage rates. Buyers who wait will inevitably be paying more to live in the same home had they acted sooner.
Check out on how Interest Affects Price for a home in your price range.
If you have a Charlottesville home for sale, the increase in interest rates will also affect you. It may mean that you will have a smaller pool of buyers who can qualify to purchase your home. Also many sellers are waiting for prices to rise before putting their home on the market. But the reality may be that a rise in home prices in tandom with rising interest rates will price many buyers out of the market.
If you are considering buying or selling a Charlottesville home, it may be a good strategy to to act now, if you are able to, rather than waiting for later in the year.