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Effects of Interest Rates on Real Estate Sales

Posted by Chris Burk on October 5, 2018
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We just wanted to take this opportunity to share with you some statistics on how interest rates effect buying and selling power in real estate.  In Gig Harbor, the current average home sale is hovering right around $500,000, so we will use that figure in this scenario.  Also, the current interest rate on a 30-year conventional home loan is around 4.5 percent.  We will use even percentages of 5 and 7 percent.  As most of you may be aware, interest rates have increased from an historical low of under 4 percent to the current rates, which are still unbelievably low.  Last year, they were predicted to raise 4 times, and that rate of increase is still expected to happen into 2019! So if you are waiting for home prices to drop, remember that interest rates are slowing increasing.  In some situations getting a better purchase price at a higher interest rate actually costs more money over the 30 year payment period.

Here are the figures for a $500,000 purchase at 5 percent interest:

Monthly Payment:  $2,681

Total Paid over 30 years:  $1,065,023

This is what you would pay at 7 percent interest:

Monthly Payment:  $3,195

Total Paid over 30 years:  $1,250,035

In summary, if interest rates increase by 2 percent before you decide to purchase a home (or sell one!) to keep your monthly payment around $2,700 per month, instead of a total budget of $500,000, you now have to find a home under $424,500.  This is a whopping $75,500 difference in your buying power!  And you are still paying over $1 million if you take the full 30 years to pay off your home.  Alternatively, this scenario also effects the seller, decreasing their buyer pool for the higher price point.

These figures are all based on a conventional loan, 20 percent down payment with good to excellent credit and include estimated property taxes and homeowner’s insurance..  All statistics are for demonstration purposes only and are in no way specific to any one circumstance.  To find out more about your personal situation, please contact your local lending expert.  If you need one, we would be happy to provide at least three competent lenders that we work with consistently and who produce great results!

Alternatively, we would be happy to consult with you about your plans to purchase or sell real estate, or just go over different price levels.  We have this same scenario worked out for multiple price points and can adjust it to yours if you are interested.  We look forward to hearing from you soon.

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