As we are passing through the dog days of summer, Littleton
buyers are starting to see rising inventory levels as more and more homes come
on the market. However it’s not only inventory levels that are rising. During the last week of May, with hints from the Federal
Reserve that they might be scaling back quantitative easing stimulus program by
the end of the year, interest rates experienced the largest single day interest
rate spike ever. Interest rates have since stabilized but some economists
interests will still rise in the coming months. Now, what does quantitative
easing and market uncertainty have to do with the average home buyer? On its
base level, nothing. However the savvy buyer understands how to connect the
dots and sees how rising interest rates will affect the average Littleton
Let’s do a little math to see the impact. The following
assumes a $200,000 purchase price with 10% down 30 year conventional loan and all
other costs estimated uniformly. This information is purely to prove the impact
at various interest rates and should not be taken as current literal estimates.
At 3.5% interest rate, your monthly payment would come out
to $1,166.28 per month. At 4%, your monthly payment rises to $1,217.35. At
4.5%, your monthly payment rises to $1,270.03 per month. For the same house and
same down payment, your monthly payment jumps $103.75.
Now let’s work this backwards. Let’s assume you have $1,500
per month to spend on a mortgage (principal, interest, taxes and insurance).
Let’s also assume you are getting a 10% down, 30 year conventional loan. At 3.5%
interest rate, you would be approved for roughly $258,000. At 4.0% interest
rate, this number falls to roughly $246,000. Finally, at 4.5% interest rate,
with the same $1,500 per month piti, your amount you can qualify for falls to
roughly $236,000. That’s $22,000 removed from the equation with just a 1%
interest rate bump.
Again, these numbers are purely hypothetical, but you can see
as interest rates rise, your buying power diminishes. With home prices on the
rise and buying power falling, many would be buyers are having to shift their
wants and needs in order to accommodate their new price point.
But it is not all doom and gloom in the market right now.
Quite the contrary, in fact. According to an article published on July 15, 2013
News, the number of home refinances have dropped significantly with
interest rate bumps. The article sites banks JP Morgan and Wells Fargo have
seen their profits from refinances drop significantly over the past few months.
As a result, some analysts believe there may be a loosening of minimum
standards for credit worthy buyers. This will allow lenders to make more loans
to a larger pool of potential buyers to make up for the lost refinance
revenues. All this is speculative at the moment but this would certainly be a
trend savvy Littleton
home buyers will want to keep an eye on. While interest rates have stayed relatively level in recent
weeks, many Littleton
home buyers are beginning to wonder if now is the time to purchase before any
other significant changes happen to interest rates. If you might be one of
these buyers, please give me a call to see how we can help you purchase your
next home. Matthew Koller is part of
the Carr Peck & Associates at Keller Williams. Carr Peck & Associates
were 6thin Denver Metro home sales out of 5,000 agents and
has been recognized by the Wall Street Journal and Real Trends as one of the
top selling teams in the country. For more information feel free to contact him or call 303-704-3286.
Photo courtesy of blog.kw.com
Author:Jason Peck Phone: 720-446-6301 Dated: July 28th 2013 Views: 6,426 About Jason: ...
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