If you are thinking of buying in 2019 with financing, you will want to know the effects of rising interest rates on your ability to buy a home. As interest rates climb, you may find that you can no longer afford that home you wanted. Even a small increase in the rate will have a negative impact on the amount that you can qualify for in a home mortgage. A buyer who is able to afford a monthly mortgage payment of $1,450 would qualify to buy a $300K home with a 4% interest rate assuming all other variables remain the same. With a 5% interest rate, the price of home that the buyer could afford would drop to $275K. The interest rate that you secure has a direct impact on your monthly payment. The higher the rate, the more the payment will be.
There are things that the buyer can do that will help to qualify for a higher mortgage. The buyer could increase the amount of money being put down as down payment, talk with 3-4 lenders who may be able to offer a better interest rate, reduce their debt to income ratio or improve their credit score.
According to Freddie Mac’s U.S. Economic & Housing Market Outlook, interest rates were projected to increase steadily throughout 2019 with a projected rate of 5.3% by the end of the year. However. a combination of weaker economic data, stock market volatility and increasing softening from the FED may result in these projections to be reduced. It is also likely that the FED will end once-a-quarter rate hikes in 2019 as originally projected.
With rising interest rates, homeowners who have low interest rates will not want to give up this rate by selling their home. These homeowners are increasingly renovating their existing home rather than buying a new home which would come with a higher interest rate. Inventory of homes for sale are already low and buyers will have a smaller inventory of homes as increasing rates and home prices make everything more expensive. If you are thinking of refinancing or buying a new home, do it now as interest rates will only continue to rise. Despite the fact that interest rate will increase, rates are still at historically low levels compared to where rates were 10, 20 and even 40 years ago.
If you are interested in buying or selling real estate in South Florida and not currently working with a Realtor, please do not hesitate to contact me via email at JayKenney@SFPropertyTeam.com or cell at (954) 547-9483. Wishing everyone a wonderful holiday season!