Thursday, July 2, 2015

What rising interest rates mean for the rest of us?

July 5th, 2013

In case you haven’t noticed, rates are slowly slowly starting to climb up. What exactly does this mean for the average homeowner? In fact, homes are actually starting to sell again in our country and building is taking place again. In our local community here we are seeing a big increase in commercial business that is actually very exciting to see. What happens when homes start to move again?
Let’s look at question 2 first and then answer question 1 because they have a direct tie on one another. When homes start to move again it creates less supply. When you have less supply the demand becomes automatically greater and the prices start to go up. Scarcity creates more demand for something in almost every case and that drives pricing. For example, a home near us sold for around 500k last week. It was a very nice home and the neighborhood is considered very good so people want to live there. When a house goes on the market in our area it is automatically generating interest and people bid up the prices on the homes. That should make perfect sense to everyone reading this and should be pretty basic.
Now how does the rising interest rates effect that? This is the most important thing to really discuss today and why I tell people that this is probably the ending of one of the best times to buy a house in the last 50 years. The rates at which you can borrow money are so so so low right now that everyone needs to take advantage. Let me give a real life example: If you were to buy a 300k home right now the interest rate you would get would be around 4.6%. Very good rate, not as good as a year ago but still very good. If you put 20% down you would have a payment of around 1233 dollars. That’s a 240k loan basically. Now, if you took the same loan amount but had a 6% interest rate (great for my earlier days), you would have a payment of 1424 dollars. 200 dollar increase a month for the same house. You don’t want to add that up over a 30 year period do you?
These scenarios are very real. To get the most bang for your buck today you want to buy as soon as you can before the rates start to climb up even more AND THEY WILL. Historically speaking we just can’t sustain interest rates this low for this long of a period of time. If you have the chance to buy then buy while you can get the most house for the least amount of money because really, this won’t last much longer.

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