Should I Buy a House right now?

What are we hearing from buyers

We have been hearing people say interest rates are too high to purchase a home. Or that home prices are going to come down, so they are going to wait to buy. We are going to go over a few things in this post to help you get a better understanding and accurate information about the current market. The goal of this post is to explain how interest rates have a dramatic effect on home prices and what consumers should expect to see, at least in the near future.

How Interest rates have changed over the years

Home buyers have been spoiled for the last decade. Historically, interest rates have been on par or much higher than todays rates. The average rate back in the 2000’s was between 5.5% to as high as 8.32% on a 30 yr fixed loan. While in 1983 the average rate was 13.4%.  Interest rates have steadily declined over the last few decades. This has helped with livable wages not keeping pace with the cost of living. Now interest rates are on the rise again. Currently, the goal of The Federal Reserve is to slow consumer spending as a way to slow inflation. They want to reduce the demand for things like homes, cars and other goods in a effort to bring prices down. So how do they accomplish this? Well, its my understanding that the Fed will continue to raise interest rates in an effort to get consumers to slow spending.

Example of monthly payment and interest

Below is an example of how interest rates affect home prices. The only way you are going to see home prices drop are if the rates go up. So if you’re a buyer that thinks a home will be more affordable when the price drops, consider this.

*Please note these are basic numbers to show how interest changes the total cost of borrowing the money and doesn’t include factors such as down payments, insurance, taxes or other fees.

$500k loan at 6% for 3o years = $2997.75 monthly  $579,190.95 interest over 30 years                          Info taken from https://www.calculators.org/loan/comparison.php

$475k loan at 7% for 30 years = $3,160.19 monthly $662,667.27 interest over 30 years

$425K loan at 8% for 30 years = $3,118.50 monthly $697,659.80 interest over 30 years.

The cost of borrowing money

As you can see, the money borrowed costs you more than the price of the home. In addition, your monthly payment is also higher. Keep in mind how this will affect your monthly cash flow and ability to get approved for a loan based on your income qualifications and debt ratios. We recommend talking to a lender about your specific situation. If you want some information on great local lenders that we work closely with, please contact us and we can point you in the right direction.

Should I buy now

I’m not sure anyone knows right now when rates will come back down. Or how high they will go before they do. As rates continue to rise, more and more buyers will be priced out of the market. I hope you learned something from this short post. If you have any questions please contact us. We are here to help you explore your options to make an informed decision. If your looking to purchase a home in Sierra Vista Arizona or the surrounding area we would love to help you out!