How Do Rising Interest Rates Impact You?

South Florida Real Estate Podcast with Dan and Michael Nathanson

Increasing interest rates have been a hot topic lately. Today, we’ll go over what’s happening with them and how they affect buyers and sellers.

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There are a lot of questions concerning interest rates, so we wanted to take a moment to explain what is going on with interest rates and how they affect you whether you are buying or selling.
The Federal Reserve raised interest rates by 0.5% the week after the election, and they are up by almost 0.75% today. This affects both buyers and sellers, but there is no reason to panic. In fact, interest rates are right where Fannie Mae, Freddie Mac, the Mortgage Bankers Association, and the National Association of Realtors predicted they would be in 2017, and they are still at all-time lows!
Sellers are worried that the buyer pool getting smaller means home prices are going to drop, but that isn’t the case. Historically, when there has been a dramatic increase in rates—not like the small increase we just had, but by 1% or more in a year—property values actually go up. This is partially caused by fear on the buyer’s part. Buyers see rates going up and get scared that if they don’t buy a home right away, they’ll never be able to afford a home. This leads to incredibly active buyers and high demand, which increases home prices.
The increase in interest rates may cause prices to go up, so why do we still recommend you buy a home today? According to Ralph McLaughlin, Chief Economist at Trulia, in many markets, mortgage rates would have to be at 7%, 8%, 9%, or even 10% for the cost of owning a home to roughly equate to the cost of renting. He believes that the financial advantage for home ownership will still persist even if mortgage rates rise.

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Don’t let increasing interest rates scare you away from buying a home.

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The cost of renting is far greater than the cost of owning a home. In fact, according to Zillow, mortgage affordability is about 15%, and rent affordability is double that at about 30%.
The bottom line for sellers is although interest rates have crept up, they shouldn’t have a negative effect on property values, and rates may even cause values to increase.
For buyers, buying is way less expensive than renting. Whether you’re a renter or a buyer, you’re still paying a mortgage, it’s just a question of whose. If you do the math, you’ll see that you’ll spend the same amount of money renting as you would paying down a mortgage over the years. The difference is, that money could be going into a home you own free and clear one day. Home prices and interest rates are projected to increase, so if you are thinking about buying, we recommend you do it sooner rather than later.
If you’d like to know more about a specific topic, let us know and we will make a video about it. If we pick your question to answer in a video, we’ll send you a $25 gift card as a small thank you.
If you have any other questions or are looking to buy or sell a home, please don’t hesitate to give us a call or shoot us an email. We look forward to helping you!