Economists predict that, as the first quarter of 2010 ends, interest rates are going to start the climb upward. Keep in mind, the beginning of the 2nd quarter also marks the scheduled end of the $8000 and $6500 tax credit for home buyers.
“You can only print money for so long,” is the common reasoning one hears to explain why, eventually, we MUST see the cost of borrowing money get more expensive. (And inflation is expected to start climbing right along with the interest rates).
Still, for now and the next couple months, the still-historically-low 5% range is expected to hold. When that number shoots up to 6%, though, and you still haven’t bought a house, you might be surprised to learn what that extra 1% is going to cost.
Let’s break it down:
Say you’re going to borrow $400K at 5%. Taxes and insurance aside, the principal and interest on that loan are going to cost you $2147.29/month.
Now, take the same loan amount of $400K and see what it costs at 6% — still a historically low rate, mind you!
Here we are: $2398.20. An extra $250.91/month.
If you know you want to buy, but have been waiting for a sign, is the difference of 1% on your home loan a sign worth serious consideration?
In my humble opinion
Seems like some of that pain associated with rising interests rates might be shared with the seller as well. In other words, rising rates may put additional downward pressure on prices a bit.
Thus … it may be a good time to buy and/or sell if you are so inclined. And if you are a cash buyer, it may be a good time to do nothing but wait
-d
You’re a wise old sage, Debbie Downer. Sellers dropping their prices in response to buyers sitting the fence when interest rates rise will indeed occur. It’s a matter of “When?” One of the first questions I ask a new buyer client is, “When do you want/need to be settled in your new home?” If timing doesn’t matter, neither do economic fluctuations. If timing does matter, I believe it’d be unwise to expect sellers to drop their prices or raise their motivation levels in parallel with rates rising. There’s a lag, always. It took well over a year for most sellers to realize it wasn’t 2004/05/06 anymore and that pounding a sign in the yard didn’t equal a guaranteed quick sale. It’ll be interesting to see how it all washes out. And if you’re paying cash, well now that’s a different story altogether.
Peace out DD.