Most people believe that home values are correlated to interest rates. They feel that if rates go down that values go up and vice versa.  The conversation is not about rates going down these days, it’s about whether rates will rise or remain the same.  On a positive note, if rates rise this means that the Fed believes that our economy is doing well and incomes are going up so people can actually afford more and therefore, can afford a larger mortgage.

I’ve been asked the question quite often about home values decreasing if rates go up. That’s not necessarily true today.  Let me remind you that I am a former math teacher.  Numbers are my favorite thing…let’s talk about supply and demand for a second.  When there is more available the value of it will come down. For example, when flat screen tv’s came out they cost thousands of dollars.  Today you can purchase a flat screen tv for a few hundred dollars because so many more are manufactured.  The same is true in today’s real estate market.  Since the number of homes currently on the market is at a low number even if the interest rate went up 1 full percentage the home sale price would still be higher than this time last year because inventory is so low.  Interest rate increase means more of the monthly mortgage payment goes to the bank instead of it applying it to principle.  It doesn’t mean that the buyer will pay less for your home, it means that a buyer’s price range changes.  For example, instead of looking at homes in a range of $400,000- $430,000 they may look at homes in $380,000 - $415,000.  A mortgage professional will be able to guide them with this information.

Let’s play with numbers: $400,000 purchase price with a 30 year loan and 20% down payment with an interest rate of 3.75% is a payment of $1482.97 for principle and interest.  If the rates went up 1 full percent (unlikely but using worst case scenario) that same purchase price and down payment with an interest payment of 4.75% will be $1669.27 for principle and interest.  That’s an increase in $187.30 more a month. Since buyers are committed to monthly payment and not so much purchase price their price range they will be looking in is what will decrease, not how much you can sell your house for.  Even if rates could go up to 4.75% they will still be at an all-time historic low.  I remember when my parents bought their home in 1979 they had a crazy 13% interest rate.  When I purchased my home in 2001 my rate was 7% and I was thrilled then refinanced in 2004 my rate was lowered to 5.75% and I was extatic. Today rates are hovering over the 4% mark…amazing!  

Most sellers are under the impression that the best time to put their house on the market is in the spring.  I can see why.  The flowers are in full bloom, trees have beautiful leaves and the bright sun makes the grass look even greener for a better curb appeal but I couldn’t disagree more about waiting till spring.  Let’s go back to supply and demand.  If most homeowners are putting their home on the market then that increases the supply. By putting your house on the market now, it has been my experience, that there will be less house “shoppers” and more actual buyers, especially if they are coming out to look at houses during the Holiday season. Buyers are still benefitting from low interest rates so more of their monthly mortgage payment goes toward principle.

This is a great time to sell and a great time to buy, even if rates go up.  Sellers have less competition and buyers are still paying an all-time low interest rate.  The way I see it, it’s a win-win all around.

Please know that I am NOT a mortgage specialist and that when it comes to the finance part of what I do, I always ask my buyers to reach out to a mortgage professional.  Loan officers are the experts.  I sell and market homes, they do the finance. 

Thank you for reading my column.  I look forward to sharing my thoughts with you next month.

Most people believe that home values are correlated to interest rates. They feel that if rates go down that values go up and vice versa.  The conversation is not about rates going down these days, it’s about whether rates will rise or remain the same.  On a positive note, if rates rise this means that the Fed believes that our economy is doing well and incomes are going up so people can actually afford more and therefore, can afford a larger mortgage.

I’ve been asked the question quite often about home values decreasing if rates go up. That’s not necessarily true today.  Let me remind you that I am a former math teacher.  Numbers are my favorite thing…let’s talk about supply and demand for a second.  When there is more available the value of it will come down. For example, when flat screen tv’s came out they cost thousands of dollars.  Today you can purchase a flat screen tv for a few hundred dollars because so many more are manufactured.  The same is true in today’s real estate market.  Since the number of homes currently on the market is at a low number even if the interest rate went up 1 full percentage the home sale price would still be higher than this time last year because inventory is so low.  Interest rate increase means more of the monthly mortgage payment goes to the bank instead of it applying it to principle.  It doesn’t mean that the buyer will pay less for your home, it means that a buyer’s price range changes.  For example, instead of looking at homes in a range of $400,000- $430,000 they may look at homes in $380,000 - $415,000.  A mortgage professional will be able to guide them with this information.

Let’s play with numbers: $400,000 purchase price with a 30 year loan and 20% down payment with an interest rate of 3.75% is a payment of $1482.97 for principle and interest.  If the rates went up 1 full percent (unlikely but using worst case scenario) that same purchase price and down payment with an interest payment of 4.75% will be $1669.27 for principle and interest.  That’s an increase in $187.30 more a month. Since buyers are committed to monthly payment and not so much purchase price their price range they will be looking in is what will decrease, not how much you can sell your house for.  Even if rates could go up to 4.75% they will still be at an all-time historic low.  I remember when my parents bought their home in 1979 they had a crazy 13% interest rate.  When I purchased my home in 2001 my rate was 7% and I was thrilled then refinanced in 2004 my rate was lowered to 5.75% and I was ecstatic. Today rates are hovering over the 4% mark…amazing!  

Most sellers are under the impression that the best time to put their house on the market is in the spring.  I can see why.  The flowers are in full bloom, trees have beautiful leaves and the bright sun makes the grass look even greener for a better curb appeal but I couldn’t disagree more about waiting till spring.  Let’s go back to supply and demand.  If most homeowners are putting their home on the market then that increases the supply. By putting your house on the market now, it has been my experience, that there will be less house “shoppers” and more actual buyers, especially if they are coming out to look at houses during the Holiday season. Buyers are still benefitting from low interest rates so more of their monthly mortgage payment goes toward principle.

This is a great time to sell and a great time to buy, even if rates go up.  Sellers have less competition and buyers are still paying an all-time low interest rate.  The way I see it, it’s a win-win all around.

Please know that I am NOT a mortgage specialist and that when it comes to the finance part of what I do, I always ask my buyers to reach out to a mortgage professional.  Loan officers are the experts.  I sell and market homes, they do the finance.