INTEREST RATES ARE INFLUENCING BUYERS
BY: DIANE LOTT, BROKER
PARADISE FOUND REALTY, INC
Interest rates have more than doubled from 2022, when rates were as low as 2.68%, and home pricing has surged in the past couple of years. This has led to some buyers hitting “pause” on their dream of owning a home.
Rising mortgage rates can have a significant impact on buying power. A 1% increase in rates can add hundreds of dollars to a monthly payment and make it difficult to qualify for a loan in the first place. As a result, you might be forced to purchase a less expensive home or wait until rates drop before entering the market.
Finding a home in a lower price range means you might have to compromise and look at homes that are in a less desirable neighborhood, in need of repairs or upgrades, smaller than you planned for, or without the amenities you want.
Example:
According to Consumer Affairs, “a borrower with a monthly income of $4,500 and a debt-to-income ratio of 36% who makes a 20% down payment, even a quarter of a percent increase can mean they’ll be able to afford roughly $12,000 less over the course of a fixed, 30-year mortgage. With a 1% increase, the price of a home they can afford drops by more than $45,000. For instance, that hypothetical buyer at a 4% interest rate qualified for a home up to $$424,159. That same buyer at 5% would now qualify for $377,220.” Currently, the average 30-year fixed-rate is at 6.31%.
*Historically, we have seen even higher interest rates before. In both the 70’s & 80’s, the United States was pushed into a recession caused by an oil embargo against the country. One of the effects of this was hyperinflation, which meant that the price of goods and services rose extremely fast. Interest rates reached their highest point in modern history in 1981 when the annual average was 16.63%, according to the Freddie Mac data.
Fixed rates declined from there, but they finished the decade around 10%. In the 1990s, inflation started to calm down a little bit. The average mortgage rate in 1990 was 10.13%, but it slowly fell, finally dipping below 7% to come in at 6.94% in 1998. Rates declined throughout 2020-2019. When January 2020 came around, the average rate for a 30-year fixed was about 3.7%. Then COVID-19 hit the United States. By December 2022, Freddie Mac reported an average mortgage rate for a 30-year FRM sitting at 2.68%.
I can empathize with today’s buyers because I was a “first time” home buyer in 1986 facing an interest rate of 17%+ as a single woman. Like most buyers today, I made the decision to get an “entry level” property, one that I could afford. It might not have been the grandest, but it got me started. Each subsequent property I bought became better and better.
Buyers shouldn’t despair, it’s all about a readjustment in attitude. The immediate gratification of having the biggest, best or move-in ready home may have to come in time. That dream home may take more time to obtain but, getting into the market is what ultimately counts. Go out and find a home that is in the right location for you but might need a little work or is a bit smaller than you would have liked, yet can afford. It’s the adage that you won’t win if you don’t play the game.
Diane
Email: Diane@ParadiseFoundRealtyFl.com
Website: www.ParadiseFoundRealtyFl.com
Phone: 954-294-5060
Your Martin County Concierge Real Estate Company!
