Higher Interest Rates Affect Home Values
Many sellers are unaware of the effect higher interest rates can have on the value of their home.
Here’s what happens when interest rates rise:
- Most buyers get a mortgage to buy a home.
- Those buyers focus primarily on the amount of their mortgage payment.
- If a buyer is borrowing $200,000 @ 5.25%, payable over 30 years, their principal/interest payment will be $1,104.41.
- If interest rates rise to 6%, the payment on that same $200,000 mortgage will be $1,199.10.
- That 8.7% increase in the payment can result in a price-sensitive buyer no longer being able to qualify for that mortgage.
- Viewed another way, the sellers would need to sell their home for 8.7% less in order for that same buyer to qualify to buy their home.
Higher interest rates inevitably lead to lower sales prices as the pool of buyers becomes smaller due to buyers no longer being able to qualify for financing.
We have grown accustomed to historically-low mortgage rates in the past couple of years.
They are unlikely to last, especially with our current record-high levels of federal deficit spending and skepticism in the bond market.
This is one of the best times ever to buy a home in the Boise real estate market with the twin benefits of lower home values and affordable interest rates.
August 24th, 2009 Posted in Inside Real Estate
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