Waiting to purchase a home could be costly for buyers and move-up sellers.
Waiting to Buy: With interest rates poised to increase, waiting is not a good idea.
With minimal expected appreciation in 2014 compared to prior years, the sense of urgency to buy is not as prevalent. Instead, many potential buyers are taking their time or putting off purchasing to a later date. This is not necessarily a sound strategy with interest rates forecasted to increase about one-percent compared to where they are today by year’s end.
Interest rates are going up. It is not a matter of “if” interest rates will go up; it is “when” they will go up. They have been held at artificially low levels thanks to the Federal Reserve dumping money into the financial system and keeping the discount rate at an extremely low level for quite some time. The net effect of taking this action for years is increasing pressure for rates to rise. Economically, it is inevitable that interest rates will rise.
Considering that rates will climb, the impact on monthly payments cannot be ignored. For a buyer that is looking to purchase a $600,000 home with 20% down, the monthly payment would rise by an additional $291 per month with a 1% increase in interest rates. To drive home the point further, if a buyer qualifies for the $2,397 payment, that’s a purchase price of $600,000 today. When interest rates climb by just one-percent, that same payment allows a buyer to purchase a $535,000 home, $65,000 less than today. Rising rates erode purchasing power and affordability drops.
As the price range rises, the difference is even more profound. For a buyer that qualifies for a $3,994 monthly mortgage payment, that’s a purchase price of $1,000,000 today. When interest rates rise by one-percent, a buyer will be looking at an $891,625 home, a difference of nearly $110,000. That is a lot less home.
Source: Reports on Housing