Now a good time for buyers, sellers
Q: What do you think is going to happen to the market with the new president? I’ve been hearing interest rates might go up, but I’m also wondering if prices will go down?
A: There’s no crystal ball, but interest rates have gone up from roughly 3.70 to 4 percent since the election. Historically, interest rates are still extremely low. There are those of us old enough remember interest rates of 16 and 18 percent in the 1980s. But, with the change in administration, we’re expecting some changes in the market, as well. And one of the key changes predicted is a rise in rates.
There are a number of reasons interest rates increase, and we won’t go into them all here but, according to Forbes.com and thebalance.com, one of the main reasons is inflation. A lot of people are concerned about inflation in the coming term and, as a result, interest rates went up just in the past couple of weeks. As mortgage rates go up, your buying power goes down.
Assume a rise in rates of half a percent. That would bring the mortgage rate on a 30-year fixed loan up to 4.5 percent. The market has been at 4.5 percent before and it’s still a great rate. (I bought my house at 5.75 percent and thought I was incredibly lucky!) But if you have a choice of buying a house at 4 percent over 4.5 percent, why wouldn’t you take it?
Let’s say you buy a house for $265,000 with a 20 percent down payment. Your payment at 4 percent, not including taxes and insurance, would be $1,012.00, according to the Bankrate.com mortgage calculator. Now, if interest rates go up to 4.5 percent and you want to keep your payment roughly the same, you would only be able to buy a house for $250,000 with the 20 percent down. That essentially means you’re leaving $12,000 of borrowed money on the table and reducing what you can spend on a house. For anyone getting a mortgage, the loan amount determines, at least in part, how much house you can buy. Since you need a mortgage to buy your house, it’s best to get out there and buy something now while you’re borrowing power is higher.
On the flip side, it’s also a good time to sell as there’s a distinct chance home values will drop a bit and the market could slow down while buyers adjust to their new approval amounts. People will either need to adjust their expectations around the house they buy, save more money, or home prices may need to come down to meet the new market conditions.
So, whether you’re a buyer or a seller, now is a great time to take action.