Realtor Advice Mt Pleasant SC: Interest Rates Are Going Up
In yesterday’s post “Realtor Advice Mt Pleasant SC: Why Now Is A Good Time To Buy”, I showed a couple factors that are favorable for buyers looking for homes for sale in Mt Pleasant SC.
The result is what today’s post will cover–the potential for buyers who wait to lose purchasing power.
As I showed yesterday, leading market analysts predict interest rates will rise in the next year, some say by as much as a full point, or even higher.
It seems that is also the public perception. A recent study by Edelman Berland found that 3/4 of the respondents believe interest rates are heading north.
In the first quarter of the year, 49% of potential buyers were motivated to buy before interest rates went up, and for 2014 Q3 that number has increased to 62%.
That is actually good news, because the general perception is that these low interest rates won’t last forever, and it is motivating buyers to move forward.
There is great opportunities for buyers (and sellers, but that is another post) in the current market, but I am sure there are still people on the sidelines second guessing whether now is a good time to buy or not.
Realtor Advice Mt Pleasant SC: The Market Crash Is Behind Us
It seems the memory of the housing bubble and subsequent crash are still in some people’s minds, and they still aren’t ready to trust that it won’t happen again. I certainly don’t have a crystal ball, but I have something close–market data, actual hard numbers.
One thing to remember for buyers out there. While now is a great time to buy a home, it may not be the right time for you. So, if you hold off until 2015, is that mean you will miss out.
You will miss out some, as you will see in a moment, but it’s not like you will miss your “golden opportunity”. I think it is always important to examine the numbers and get the full picture of what is going on in the market, but you also have to keep things in proper perspective.
Just because the numbers go up or down slightly doesn’t mean it is time to panic or celebrate–you have to look at the overall picture and once again, keep things in perspective.
Realtor Advice Mt Pleasant SC: Buyers Who Wait Will Lose Purchasing Power
For example, as I have shown, more than likely interest rates are going up. Now is a good time to buy, and buyers that hold off will lose some purchase power. But if you don’t feel like you are just there yet, here is the proper perspective. Interest rates are still at some of the lowest numbers they have ever been. Even if the approach or exceed 5%, historically that is a very good averag e.
The graph to the right illustrates that. It shows the average interest rate from every decade since the ’70s. As you can see, even 5% looks great compared to most years past.
So, how does the increase in interest rates affect buying power in 2015? First, the obvious–it will mean a higher monthly payment.
But there is another factor involved that will affect buyers who wait–rising home values. This means that a home today that is valued at $250,000 will be worth more in a year.
So, not only will your mortgage payment increase by virtue of the increased rate, but it will cost more because your new house is now priced higher.
The graph below shows the difference in the cost of a $250,000 house today vs. buying it in a year. (It assumes an increase of value of 4%, which is roughly what many leading analysts are predicting).
Realtor Advice Mt Pleasant SC: Just How Much Purchasing Power Buyers Lose With Increase In Rates and Values
The next graph does a great job of illustrating this. It shows how much your purchasing power decreases as rates go up.
In order to keep your monthly payment roughly the same as interest rates rise, your price range drops accordingly.
So, that $300,000 home you like right now and are thinking of buying? Well, next year it will be $312,000.
And that is a double edged sword for buyers. Increasing values are a good sign of a healthy real estate market, and should instill confidence in buyers. Plus, by buying now you can take advantage of the rising values and start building equity.
Of course, the downside is by waiting you lose purchasing power, as well as opportunity cost.
At the end of the day, whether now is the right time to buy comes down to what works best for you and your situation. However, according to the market data, it is better to buy now than wait.
Realtor Advice Mt Pleasant SC: Free Fall 2014 Home Buyer’s Guide