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Fair point. But, interest rate moves inversely to asset prices. I'd imagine the house you purchased with that 5% rate is probably worth a bit more today.
By historical standard, today's rate is still very low, but home prices is still very high. Many places in Somerset county are asking/trading at all time highs. All I am saying is that as a buyer, as interest rate has moved up meaningfully from where it was, I expect prices to come in a little bit.
rates will impact selling prices eventually. you've got a lot of buyers coming off the sidelines right now, and not enough sellers to match it. in due time, builders will re-enter if sellers don't fill the gap. I bought in March, 2010 @ 4.875% and refinanced in October 2010 @ 3.875. I never thought I'd be refinancing a 6ish month old mortgage! But I did. And my home is probably not worth more today than when I bought. If anything, it's flat. But anyways....don't get too worked up over a less than 1% increase in the rate from the lowest-ever rate we saw. It's still quite affordable for buyers, and supply will appear eventually.
Thanks for all the feedback. However, most of the responses here are qualitative in nature. But for actual home buyers it's all quantitative. I did a quick excel under the following assumptions.
Buyer has $3000/month to pay mortgage(excluding property tax, which is likely another $1000), taking out a 30 yr mortgage.
At 3.3%, The buyer can finance a loan of $685k
At 4.5% $592k
That loss of $90k in buying power is very real. One of two things has to happen, either the buyer strains his finance a bit more(which the bank may not go along with in looser underwriting standard) or the selling price has to come down. Long term interest rate continues to rise as I type. As a conservative buyer, I am adopting a more "wait and see" approach.
1% jump in rate, on an equal mortgage balance ($685 v $685) would cost the buyer about an extra $470/month. it's kinda funny that you used the 3.3% rate, since they really weren't that low for more than a very short time. and now you're using 4.5%, when if you were a borrower who could have qualified for the 3.3% rate, it's looking like today you'd get 4.24% or better.
every 1% is going to equal another $100 per $100k financed.
also, you failed to mention that $685,000 would be a jumbo mortgage, which wouldn't get you that 3.3% rate.
1% jump in rate, on an equal mortgage balance ($685 v $685) would cost the buyer about an extra $470/month. it's kinda funny that you used the 3.3% rate, since they really weren't that low for more than a very short time. and now you're using 4.5%, when if you were a borrower who could have qualified for the 3.3% rate, it's looking like today you'd get 4.24% or better.
every 1% is going to equal another $100 per $100k financed.
also, you failed to mention that $685,000 would be a jumbo mortgage, which wouldn't get you that 3.3% rate.
I also think that if prices drop, sellers will pull back, which will mean even less product available to buy in an already undersupplied market. So for the stuff that will be listed there will be even more buyers chasing it, which will keep prices high. Just because rates go up doesn't mean sellers will eager sell at a lower price....they may just decide to wait it out as well and in that case you have a frozen market. It will be interesting to see what happens. Glad I made my move when I did...I got a 2% rate through my brokerage house and bought at a great basis when most were still waiting for prices to fall further...they didn't.
1% jump in rate, on an equal mortgage balance ($685 v $685) would cost the buyer about an extra $470/month. it's kinda funny that you used the 3.3% rate, since they really weren't that low for more than a very short time. and now you're using 4.5%, when if you were a borrower who could have qualified for the 3.3% rate, it's looking like today you'd get 4.24% or better.
every 1% is going to equal another $100 per $100k financed.
also, you failed to mention that $685,000 would be a jumbo mortgage, which wouldn't get you that 3.3% rate.
By all means, use 3.5%, 4.2%. The point is equally as valid. Btw, the yield on 10 year and 30 year treasury just set a new 3 year high again today, so rates are probably going higher. Here is the table of buying power compression, with various monthly payments and 30 year mortgage interest rates.
i hate tables pasted in this format. but i know what you're saying. bottom line is, currently, it's not a huge impact. i'm not worried, though as MiamiLIFE stated, it will be interesting to see how the market responds. On my drive home, I've seen in the past 2 months ground broken on 4 new homes, so obviously some people are coming back to constructing new homes. We'll see. Bottom line is, if you've been sitting on the sidelines the past 5 years, waiting for the right time to buy, hopefully you were saving. Buy the house you can afford. Maybe that means giving up something now that prices have started to creep up, but there are still good homes out there for buyers that are willing to look. I'm sure my neighbor's house will be pretty cheap when it goes on the market, cause he was 84 yrs old and it is gonna need upgrading. For someone who is willing to take on a project, it's a great house.
If folks keep worrying about all this small stuff, they will NEVER buy a house. All this talk about rates going up and housing having to drop in price to reflect that is nonsense. The same argument could then be made about taxes right? Taxes go up EVERY year, does that not effect buying power?
People need to realize buying a home, is about having a place to live and grow a family. Buy a home you can afford, and make the payments. Why sweat the stuff you have zero control over? Yeah it sucks, you missed out on the record low 3.5. So you can't get a 700k home, and need to settle for a 600k. Life could be worse folks. Enjoy it.
who cares about historical standards? all that matters is today's rates and prices. if rates are jumping, you should probably wait for sale prices to go down.
If folks keep worrying about all this small stuff, they will NEVER buy a house. All this talk about rates going up and housing having to drop in price to reflect that is nonsense. The same argument could then be made about taxes right? Taxes go up EVERY year, does that not effect buying power?
People need to realize buying a home, is about having a place to live and grow a family. Buy a home you can afford, and make the payments. Why sweat the stuff you have zero control over? Yeah it sucks, you missed out on the record low 3.5. So you can't get a 700k home, and need to settle for a 600k. Life could be worse folks. Enjoy it.
Just because you disagree with something, doesn't necessarily make it nonsense.
Real asset price in nominal terms should reflect aggregate money supply. As many others have pointed out, the adjustment doesn't happen in real time, and there is often a lag. Not sure where you were going with that tax analogy, and tax rates in general (income and capital gains) are flat to down in recent years, except this year(obamacare and sequestration)
I do agree buying a home is as much a life style decision as a financial one, so cost shouldn't be the singular determinant. Buy what you can afford, buy when you are ready are pretty good rules to follow.
if rates go up significantly, i think that boat may make another voyage.
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