Real estate buying power is determined by more than the price of a property and a buyers’ available finance. Mortgage interest rates play an integral role in a buyer’s purchasing power. The interest rate that you secure for your home loan will greatly determine your buying power.
To sum it up simply, buying power is the amount of home you can buy for the budget you have to spend. Buying power is conversely affected by the rise and fall of mortgage interest rates. As rates increase, buying power decreases. As rates decrease, then buying power increases.
Mortgage Interest Rates
Every year, Freddie Mac conducts a survey of mortgage rates to show how mortgage rates are fluctuating. Referred to as the Primary Mortgage Market Survey (PMMS®), the latest survey shows that interest rates for a 30-year fixed-rate mortgage are still around 4%. It still incredibly low in comparison to recent history.
The chart below shows what impact rising interest rates would have if you planned to purchase a home within the national median price range, and planned to keep your principal and interest payments at or about $1,100 a month.
Buyer’s Purchasing Power
With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5%, (in this example, $6,250). Experts predict that mortgage rates will be closer to 5% by this time next year. Based on the prediction, it’s clear that it’s best to buy sooner rather for the greatest buying power.
Start your real estate transaction with a sound strategy. Contact David Brodsky Properties to schedule a complimentary consultation with an experienced Austin real estate strategist. We’ll help you develop a sound strategy for your individual situation. Our time is free and having a well-laid strategy is essential for a successful real estate transaction.