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Rising Rates Impact Affordability: Here's Why You Should Care

While still low by recent history standards, interest rates are certainly not at the amazing levels we saw just a few short months ago. In addition, the Mortgage Bankers Association, Fannie Mae, and Freddie Mac are all saying that home sales are going to climb this year. So what does this mean if you are in the market for a new home?


Rising Rates Impact Affordability: Here's Why You Should Care

Tracy Reynes
Feb 8 4 minutes read

Unfortunately, it means that waiting to buy your new home can mean you’re missing an opportunity to get a great rate and a good price on your purchase. When home sales climb, the number of available, desirable homes decreases. And when there’s more demand than supply, prices rise. And when rates and prices both climb, houses become less affordable, you’re getting less home for your money, and your purchasing power erodes. 


The National Association of Home Builders and Wells Fargo have been tracking housing affordability in their joint Housing Opportunity Index (HOI) since 1991. Recently, the index reported that 61.4% of all new and existing homes sold in the third quarter of 2016 were affordable to households earning the national median income of $56,516. In Q1 of 2016, the index stood at 65%, and the median price of a home was $223,000; the report from Q3 puts median housing prices at $247,000. 

As you can see, over the course of last year, fewer and fewer houses were affordable to the average household, as median home prices climbed by about $24,000. 

Purchasing Power

Every quarter of a percent rise in rates — heck, even an eighth of a percent — will significantly downgrade your purchasing power. That means you’ll end up getting less home for the money. Your purchasing power is still pretty strong right now — don’t wait for it to decline before you decide to make that new home purchase. Will that mean the difference between two or three bedrooms? Between living near work and an hour-long commute? 

I can walk through the numbers with you so you can get a clear idea of the impact rising rates will make on you personally. 

We can’t emphasize this enough: It’s a good time to buy into the market now. Rates are still amazingly low, housing prices are expected to rise, and if you’ve been thinking of taking the plunge, you should do so now or risk missing out on a historic period of housing affordability. 

Jumping into the housing market now will help you save money on both the cost of a new property and on your mortgage loan. If you want to crunch the numbers and find out how much home you can afford right now and how much your personal purchasing power could be affected by a continued rise in rates, contact me for a no-obligation consultation. Let’s review your options and help you decide if the time is right to purchase the new home you’ve been dreaming of — before the numbers change and you may have to settle for a home that doesn’t make your dreams come true. 

Article Courtesy of Nichols Dolata, Mortgage Advisor, Peoples Home Equity

[email protected] or 707.721.6536

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