Are you considering the purchase of a home and thinking maybe we should wait a year?
Perhaps your thinking should take into account what would be the effect on the monthly cost for that same home if mortgage interest rates go up 1% and home prices continue to rise as expected?
Depending on where you want to buy, you could be priced out of a home you could now afford!
Take a look at what Zillow has predicted:
“If you’ve been on the fence about buying a home now or delaying your purchase until next year, you’ll want to pay attention to this: The house you can afford today may be out of reach a year from now due to rising interest rates and home price appreciation.
To put a dollar figure on it, Zillow applied next year’s forecasted home values and a 1 percentage point interest rate increase to the median home price in 35 metros around the country. We used that to calculate the difference in mortgage payments. The results may surprise you.
“More often than not, buyers do not understand the profound effect of rising interest rates on affordability,” said Erin Lantz, vice president of mortgages at Zillow. “Many buyers associate a 1 percentage point interest rate change with a 1 percent change on a piece of clothing or the price of a car, when in fact they are very different.”
As a rule of thumb, Lantz said, a 1 percentage point increase in mortgage rates reduces affordability by 10 percent.
Of course, buying a home is not all about the money. Making sure you are financially stable and ready to make a significant long-term financial commitment should always come first.
To see which metro areas would be most affected by a 1 percentage point increase in interest rates, see the graphic below.”