With interest rates still hovering near all-time lows, the real estate industry continues to boom. But the lack of active inventory has created a very exhausting process for eager buyers and their agents. Because it is difficult to get an offer accepted right now, I am sure you hear things like, “Prices are high, I don’t want to compete right now so I think I will wait until things cool off a little and prices come down.” What generally cools off a hot real estate market? For one thing: higher interest rates.
Here is some quick math that may be interesting to both you and your buyers who are trying to decide if now is the right time to act:
Let’s say a $400,000 home drops 10% in value over the next 12 months. That means the house is now worth $360,000. But let’s say during the next 12 months, these historically low interest rates go up a mere 1%, which is a good possibility.
Based on the current 30-year fixed interest rate, the payment on $400,000 would be $1607.
If you bought that same house for $40,000 less, but the rate increases by 1%, the payment would be $1642, $35 HIGHER. If rates go up 2%, the monthly payment would be $244 higher, even though the price is $40,000 less. Crazy huh??
In fact, if interest rates go up 2%, the price of a $400,000 would have to plummet by $85,000 in order to have same payment.
Food for thought. Contact the LeaderOne Financial Roller Mortgage Team to learn more.