Making sense of interest rates and the current state of the real estate market, with its predicted future trends can be a painful process when you need a new home. Still, it’s important to know how to navigate the market when interest rates are rising, especially if you’re looking to buy.
How important are interest rates when determining your budget for a home purchase, and how do buyers deal with rising interest rates? To understand this, we must first have a look at the basics and move on from there.
Interest Rates — Why Do They Move?
As the “cost of money”; the interest that you have to pay over the price of your principal amount of a loan will play a part in determining your budget. Interest rates are influenced by many factors, most of which are out of your control. Inflation can affect the interest rates, as well as financial liquidity which is controlled by the Fed.
After the financial crisis of 2008, the Federal Reserve kept the interest rates extremely low to encourage economic recovery. However, interest rates have been on the rise since 2015. Interest rates reached 1.5% in 2017, after being kept at 0.25% since 2008, with an increase to 0.5% in 2015.
Effect of Rising Interest Rates on the Market
When interest rates are beginning to rise, there’s also a rise in home prices when previously indecisive buyers rush into buying. Fearing that the interest rates will continue to rise, purchasers hurry up to make a move before that happens. When there’s also a natural rise in home prices following the increase in income levels, the pool of available homes shrinks. Affordability of homes is becoming a more serious issue, but even if interest rates keep rising, home prices should eventually go down when fewer people can afford those prices.
When it comes to the impact that rising interest rates have on your financial ability, it will affect how much you can afford. However, when qualifying for a mortgage, your primary concern should still be your debt-to-income ratio and your credit score.
Dealing with Rising Interest Rates
One of the ways of coping with rising interest rates is to wait for the right opportunity. With a smaller pool of homes to choose from, and at a high price, it might take some time before the house that’s right for you hits the market. If you’re actively looking through the listings and not finding any affordable homes, remember that you’ll likely see the same house being listed for less once the first wave of buyers passes it by. Patience pays off, and buying a new property is a big decision, so make sure you’re making a choice that you’ll be happy with years down the line.
Enlisting the Help of Professionals
In today’s real estate market, it’s essential to work with a professional real estate team that can clear up all of your doubts and helps you make a purchase you won’t regret. Look no further than Monica Diaz team if you want years of experience and an exceptional sales record on your side.
If you’re looking to buy or sell in Southern CA, let’s talk.