buyers purchasing power goes down as interest rates go up

We all know that the historically low interest rates have to end at some time and start to slowly creep up but what most people don't realise just how much that increase can affect the quality of the home they will be able to afford. if you look a

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buyers purchasing power goes down as interest rates go up

Posted by Gary Ashton: RE/MAX ADMIN on Monday, March 9th, 2015 at 5:18pm.

Buyers Purchasing Power

We all know that the historically low interest rates have to end at some time and start to slowly creep up but what most people don't realise just how much that increase can affect the quality of the home they will be able to afford.

if you look at the image above, and place yourself in the position of the home buyer who has talked to their lender, and found that to stay within their budget, they basically have to stay within the $1800-$1900 a month range.

You can see that the diagonal line shown above shows the payments in that 1800 to 1900 range, and as the interest rate starts to creep up so does that relative purchasing power of the buyer. So when the interest rate was only 3.75% they could afford a monthly payment of $1,852 which equates to a loan of $400,000. However, as the rate increases to say 4.75% the loan payment stays very similar at $1,878 but now they can only qualify for a loan amount of $360,000

You can see how quickly the buyers will have to change the property type they are looking at. Over a period of time, the rising interest rates will have an effect on the list price of homes, as the demand will be reduced, and with reduced demand the sellers will have to bow to the economic pressure and reduce their list price possibly. However, the buyers that were once looking at $500,000 homes will now have to reduce their sights too to a lower figure.

In reality, the only people that benefit from the rising mortgage rates are the cash buyers, who now can negotiate for the best possible deal, as they can close quickly and they benefit from the markets downward pressure on the sales price of the homes for sale.

So, if you are thinking about selling your home, and intend to stay in the Nashville area, then contact us today to talk about how we can help you sell your home for top dollar using the #1 RE/MAX team in Tennessee and the only real estate team endorsed by Barbara Corcoran as the team she trusts.

Contact Gary Ashton today!!!

 

 

Gary Ashton

The Ashton Real Estate Group of RE/MAX Advantage

The #1 Real Estate Team in Tennessee and #4 RE/MAX team in the world!

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