|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.