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The Impact of Rising Interest Rates...

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The Impact of Rising Interest Rates

Whether you're thinking of buying your first home or selling your current home in the next year or two rising interest rates may have a significant impact on your ability to do so. The Federal Reserve has already raised the Federal Funds rate three times this year and another raise is planned for December. Moving forward into 2019 they are eyeing at least 3 rate hikes and talking about another one in 2020. While these fed rate increases don't directly correlate to mortgage rate hikes, they will indirectly lead to higher mortgage interest rates. For buyers, rising mortgage rates will impact the amount of house they can afford to purchase and for sellers it will shrink the number of buyers that can afford their home and will lower the overall pool of buyers.

As a home owner this could impact the sale of your home in terms of price, days on the market, and number of prospective buyers. Every quarter-percent (0.25%) rise in interest rates reduces home buyer purchasing power by 3 percent. That means for a home purchase of $200,000, a 1% interest rate rise reduces buying power to just under $178,000. So, someone who potentially may have been able to purchase your home  at today's rates may no longer have the buying power to do so. This results in a smaller buyer pool and less demand for your home. It’s also likely to increase supply as fewer people are able to purchase homes, which is also not good for your property value.

For home sellers this means you may want to do so sooner rather than later. Acting quickly could equal a larger pool of buyers for your home, resulting in a higher sales price and a quicker sale. In addition, it will allow you to purchase your new home before rates increase even more saving you thousands of dollars. And home buyers still have a window of opportunity to lock in a low rate before the next hike and take advantage of being able to buy more house for the same payment.

Even with the planned rate hikes it's good to keep things in historical perspective. Rates for first time home buyers today are still lower than their parents paid in the 1980's and '90's or their grandparents paid in the 1960's and '70's. If you would like to get together to explore your options for buying a home or listing your home, or have any questions about the impact of rising interest rates I would be glad to talk with you. 

Best Regards,


My take... on home affordability.



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Housing Trends: Home affordability...

There seems to be some concern among consumers that home ownership is becoming less affordable as the economy accelerates. Fortunately the facts show that is not the case. While home prices have been steadily rising and interest rates have also been slowly ticking up over the past year, home ownership is more affordable now than in recent decades for most Americans. In fact with rents steadily increasing at double digit rates purchasing a home is becoming even more advantageous to most buyers.  One of the many benefits of owning a home is that you are locking in your housing payment for a very long period of time, typically 15 or 30 years. While rent payments continue to rise year after year your mortgage payment will remain the same.

While it's true that the economy is heating up, unemployment is at historic lows, and inflation is starting to tick upward home ownership is still more affordable today that it was during the 1980's and 90's. A recent report from Zillow shows that homes are more affordable now than they were during every year from 1985 - 2000. While home prices have been appreciating more rapidly over the past several years, much of the rise in home prices can be attributed to the market "catching up" to where home prices would have been anyway had the market not hit a steep decline a decade ago following the questionable lending practices of the 2000's.

As you may already have realized home affordability is determined by more than just the price of the home. Home affordability is the combination of several factors including the price of homes, mortgage interest rates, and  the earning power or average wages of consumers in a given market area . While average home prices and interest rates have been moving upward over the past several years, the earning power of most Americans has also been increasing. This is especially true in West Michigan as our economy has been roaring back to life over the past several years following a prolonged recession that hit Michigan especially hard.

One of the best ways to measure home affordability is by looking at the percentage of median income necessary to pay the average home owners mortgage. This formula is a more accurate measure of affordability because it takes into account the price of the home, interest rates, and earning power. From 1985 - 2000 it took an average of 21% of a family's income to pay for a home. In 2018 it takes just 17.1% of the average family's income to pay the mortgage. The bottom line is that while home prices have increased over the past several years, they are still at historically affordable levels and will remain so as long as interest rates (currently averaging around 4.6%) remain below 6%.

Even though home prices and interest rates are rising, it's still a great time to buy a home! If you know someone that is thinking about buying their first home or moving up to a new home it is important that they have a trusted agent that understands the market and will work hard for them. A referral is the best compliment you can give me and I will always go above and beyond to provide everyone you refer to me with the best real estate experience possible. For those that I have worked with over the past several years, thanks for trusting me with one of the most important transactions in your life. For those who I haven't yet had the opportunity to work with, I look forward to earning your trust and serving your real estate needs in the future!

Best Regards,

Video: Are Home Values Really Overinflated?

Recent price increases have some concerned that current home values are overinflated, but year-over-year appreciation is reasonable based on historic appreciation levels.

My take... on home ownership!

Contact Dwayne

My take... on home ownership!

Home ownership is on an upward trend after hitting a 50 year low in 2016 at just 63.5%. Even though home prices continue to rise and inventory remains low, existing home sales continue to increase month over month. Home ownership is still at the foundation of the American Dream with 75% of Americans saying they would prefer to own their home rather than rent. And in a recent Gallup Survey real estate was rated as the number one preferred investment over the stock market and other investments for the fifth year straight. So what does this all mean... 

If you are thinking about listing your home and upgrading to a larger home with more amenities or in a more preferred location there's no better time than the present to make your move. Your current home is likely in high demand (especially if it is in the starter home category) and will probably sell quickly with competing offers. And if you're moving up to a more expensive home in the 200K range or above the market tends to become a little less competitive as the price point increases because there are fewer buyers competing at these higher price points. While home inventories remain low overall and finding a home may require some perseverance no matter the price point, it becomes less competitive as you move up in price and tends to be more challenging at the entry level of the market.

This doesn't mean first time home buyers or those under 200K should give up or hold off on buying a home right now. Even though prices have been creeping up over the past few years, homes are still more affordable now than they have been at nearly anytime in the past 40 years when you take all factors into account including interest rates (which are still well below the 40 year average), home prices, and increasing wages/salaries in West Michigan. In this challenging market it is important for buyers to be aware of these dynamics and to know that it will take some work and perseverance to find the right house and get an accepted offer. It is also important to have a trusted agent that understands the market and will work hard for you in making your home owning dream a reality. For those that I have worked with over the past several years, thanks for trusting me with one of the most important transactions in your life. For those who I haven't yet had the opportunity to work with, I look forward to earning your trust and serving your real estate needs in the future!

Best Regards,



4 Reasons Why Today’s Housing
Market is NOT 2006 All Over Again

4 Reasons Why Today’s Housing Market is NOT 2006 All Over Again | MyKCM

With home prices rising again this year, some are concerned that we may be repeating the 2006 housing bubble that caused families so much pain when it collapsed. Today’s market is quite different than the bubble market of twelve years ago. There are four key metrics that explain why: Home Prices Mortgage Standards Mortgage Debt … Read More

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