Here’s what our changing interest rates mean for buyers and sellers.
Today I’m joined by guest speaker Holden Hamilton, one of my favorite loan officers from Gold Financial, who is here to tell us what has happened over the last couple of years in terms of interest rates.
Back in May of 2020, though everyone started to feel the repercussions of COVID in terms of jobs, those of us in real estate were very blessed to be in the housing industry during that rough time. The Federal Reserve started purchasing mortgage-backed securities and bonds at nearly $120 million a month. Market watchers predicted the tapering of bonds per FED announcements late September 2021. With this news the market reacted with an increase in interest rates over the past few weeks. The official announcement came early November and will begin to actually taper December of 2021. That had the effect of hiking up interest rates, along with inflation, unemployment, and other miscellaneous factors.
For reference, here are some key statistics to note: One year ago your interest rate on a $300,000 home would have been 2.75%, which would put you at $1,163 a month in principle and interest. A month ago, the rate was 3.125%, which would have put you at a $1,220 monthly payment. Today the rate is 3.375%, which is a $1,259 monthly payment. That’s a $96 difference!
As economists and leaders in our industry, we look at where it’s most beneficial to invest that money, be it in the real estate market or the stock market. Suppose you took that $96 you would have saved if you bought a year ago and put it in the stock market at an average rate of about 10% per year—if you would have done that over the life of your 30-year loan, it would amount to $218,000 from just a $96 monthly investment.
“If you’re buying or selling a home this year, you could be impacted by rising interest rates.”
You also have to look at appreciation. Homes have appreciated at about a rate of 7.83% over the last three years. If you bought a $300,000 home two or three years ago, your home would be worth around $376,000 today. That’s a huge difference!
So what does this all mean? It means that now is not the time to wait; you don’t want to get to a point where homes are so expensive that you can’t buy what you want. You also don’t want to buy it at an increased interest rate; ideally, you’d retain that money and invest it elsewhere, letting it do the work for you.
If you think that it’s best to wait until the spring or summer of next year to buy, understand that interest rates may be even higher then. Though it may be a little bit of a challenge to sell during the holidays, many buyers still purchase homes during this time because it’s very nostalgic to buy a home for Christmas.
Ultimately, if you’re buying or selling a home this year, you could be impacted by rising interest rates. Give us a call or send an email today. Let’s talk through the benefits of acting now as opposed to waiting.
