Interest Rate Hikes and Buyer Impacts

Wow, interest rates creeped up again another .75 points!?!? Well if this doesn't help slow down the real estate market, then I don't know what will. Buyer buying power decreases about 10% for every percentage point increase in interest rate. So a buyer pre-approved at $1M @ a 3% interest rate will now be looking at a purchase of $900k @ 4% interest and $800k @ 5% interest. That's a pretty significant loss of buying power especially since property priced have not decreased all that much in recent years.

What to do?

The Smart Buyers ADAPT their buying strategy!! If you search for and compare Interest Rates you'll see that buyer have options. Take a look at the graphic below which I found on Zillow.

Does the standard 30-year fixed rate mortgage make sense in today's market? Given the number of people relocating for jobs and quality of life, maybe it isn't the best option. Do you as a buyer see yourself living in a property for 30 years? The likelihood of that is lower now than it has even been. So what does that tell you?

In order to recoup some of you buying power back, looking at Adjustable Rate Mortgages might make more sense. The rates are lower by a full percentage, which equals 10% more purchasing power, and if/when rates do decrease you can refinance to a fixed rate and lock in your interest rate for 15 or 30 years.

On top of the lower interest rate, you can also BUY DOWN the interest by paying points which would lower your rate even more! So you spend a little money upfront to get the loan, but you save in the long run by having a lower interest rate

But let's be real here, we couldn't have record low interest rates forever right? We were lucky enough to have them for as long as we did but compare that to when my parents purchased their house in the 1980's, interest rates at that time were in DOUBLE DIGITS! See the chart below for reference courtesy of GoBankingRates.com

Let's try and keep things in perspective here. Yes purchasing power has decreased but there are ways to recapture some of it if you're savvy and have a great agent and lender working for you. If you're interested in keeping up on Bay Area real estate, please have a look at our YouTube Channel Margot and Ricky Homes: https://www.youtube.com/channel/UCXGMfqi8ITerw8iJaDwuaAA/videos You'll find monthly market update videos and other videos on real estate related content including some of our latest listings.

Thanks for reading