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Buyer Resources

Rising Interest Rates Impact Both Buyers and Sellers

Interest rates are currently in the 3.7% range (as of mid 2015).  Freddie Mac  predicts that by the time we reach the end of 2015, rates will climb to at least 4% and will continue to climb in 2016. What buyers need to understand is that, as interest rates rise,  purchasing power goes down.  

Here's a good rule of thumb: as the rate goes up 1%, your buying power goes down by 11%. For example, on a 30 year fixed rate mortgage the mortgage payment on $400k loan (80% of $500K property) at a 3.5% rate is the same as the payment on $356k loan (80% of $445K property) at 4.5%.  

With rates so low and expected to rise, now is a great time to buy!   For home sellers, buyers will be able to pay more for your house today than they will in a year as they have more purchasing power now - so, it is a great time to sell!

Historical Perspective on Interest Rates

30 year fixed rates have ranged as high as 18.5% during the past 4 decades.  Here are the Average 30 Year Rates for each of the last 4 decades, putting today's rates in perspective:

        1970's  -  9.03%

        1980's  - 12.5% 

        1990's  -  8.12% 

        2000's  -  6.92% 

        2010   -   4.69%

        2015   -   3.7% 

The average over the last 4 decades (1970 through 2009) has been 8.97%. Buyers should understand what a bargain 3.7% (today) really is.  This alone is ample reason to get off the fence!

 

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