When it comes to buying a new house, the two most important things that most home buyers will consider are the interest rates and the purchase price.
Both these things are essential, so with the rising interest rates, how is this affecting the prices of homes, and how does it affect homebuyers?
How are buyers affected by rising interest rates?
If the interest rates or prices of houses are high, buyers may be hesitant to enter the market.
They may be scared of a potential market crash and want to wait until things cool down.
With the interest rates rising, the purchase price that the buyer was pre-approved for may no longer be valid due to the increase in the monthly mortgage payment.
The home prices become too expensive, and many buyers will be priced out of the market.
As the rate increases, the total monthly mortgage payment also increases. That payment is known as “PITI” for principal, interest, property taxes, and insurance.
Buyers typically can’t lock in an interest rate until they have an accepted purchase offer, and mortgage interest rates might be higher by the time they get a purchase offer accepted.
Rising interest rates affect first time home buyers the most.
First time home buyers who barely meet the criteria to qualify for a home loan could be pushed into the “housing is no longer affordable” territory.
In other words, it could leave them unable to qualify for a home loan, thereby making home ownership unattainable.
If you’re selling your home, take offers more seriously.
To have confidence in a buyer’s ability to finance your home, make sure the pre-approval is based on the current date.
Do Interest Rates Affect House Prices?
Median home prices so far in 2022 are in the $350,000 range. This is obviously higher in areas like San Diego, Los Angeles, San Francisco.
Today’s homebuyers are dealing with an intense shortage of homes for sale.
Homeowners are sitting on record levels of equity, which makes a foreclosure crisis highly unlikely.
What this means, is that with the current sellers market, the higher interest rates will not lower purchase prices.
There is a prediction that Americans will continue buying homes, just as baby boomers did when mortgage rates soared into the double digits in the 1980s, and just as Generation X did when mortgage rates were 9% in the 1990s.
People are going to adapt. People aren’t going to stop buying houses because rates go up.
It’s likely that home prices are going to continue to rise, but at a slower pace
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