As consumers, we are all feeling the squeeze as historical inflation is impacting our every day lives. Many are looking at their household budgets to see where they can adjust monthly spending habits to maintain financial comfort.

The state of the housing economy is something I’m always in tune with. It has become a more frequent conversation in recent weeks as my clients are watching closely to see how their position as Home Buyers or Sellers will be impacted.

How do interest rates impact my home search?

Interest rates impact buying power.

In recent years many have benefited from historically low mortgage rates. Buyers were locking in mortgage rates as low as 3% (or below)! These low rates gave Buyers the ability to push their purchase price, which is why many markets saw a surge in home values.

Remember… How much a buyer can afford is not about the purchase price, it’s about the MONTHLY PAYMENT.

EXAMPLE:

*Approximated numbers for the purpose of this example

Let’s say your goal is to maintain a monthly payment around $2,500 and you have $65,000 saved for your downpayment. If your mortgage interest rate is 7%, then you will want to keep your purchase price under $350,000.

When interest rates were down at 3%, this increased buying power. The same $65,000 downpayment would have allowed you to buy up to a $450,000 property and maintain that $2500/month payment.

As a result of the rate correction, it is expected that some areas will see home prices start to come back down and meet Buyers at their adjusted buying power. Other areas will simply level out and values will hold. Some hot markets may continue to push in value given the low inventory, but likely at a slower rate than we’ve seen in recent years.

Rising mortgage rates does not mean that it is a bad time to buy or sell! It simply means you have to adjust your expectations.

Home Buyers… Don’t Panic! Revisit your goals.

1. What monthly payment are you comfortable with?

2. How does that monthly payment adjust your maximum purchase price?

3. Discuss any price adjustments with your Realtor.

4. Be prepared to expand your search areas and/or property criteria.

Home Sellers… Recognize that there is a market shift!

The days of wild bidding wars, waived contingencies, and surging prices may be coming to an end. Although the low housing inventory is still creating some multiple offer situations, buyers have tighter budgets and are less willing/able to stretch.

Be prepared for fair negotiations around price and the potential need for repairs.

Questions? Reach out to Emily to discuss: emily.woods@veryre.com