Rising Rates Impact Buying Power
Rising Rate Impact Buying Power: Mortgage rates are up over 1% from 1/1/2018. In certain cases, the rising rates can have serious detriment on a person trying to buy, sell or a combination of both. There are effective ways to mitigate the impact .Contact your trusted & licensed mortgage broker to explain how.
Rising Mortgage Rates Impact Buying Power
Ellen Paris, Contributor
New York has the highest monthly mortgage rate increases (Credit: Getty Royalty Free)
Rising mortgage rates impacting buying power isn’t a surprise in today’s market. Realtor.com recently released new data showing how much actual monthly mortgage payments are rising around the country. “As we see rates rise this fall, we do see them taking on a bigger role in affordability and constricting buying power in certain markets,” observes Javier Vivas, director of economic research for Realtor.com.
According to Realtor.com, “the average U.S. monthly mortgage payment has jumped 15.8%, or $223 per month, since last year.” In September 2017, that number was $1,413, rising one year later to $1,636 based on a median price of $294,900. “In the top 20 largest markets combined, 68% of the incremental payment increase is now coming from a rise in rates,” Vivas explains. “This is a big shift from earlier this spring when rates accounted for just 36% of the payment increase,” he adds.
Traveling around the country, that number has varying impacts market by market. All of Realtor.com’s stats are from September 2017 to September 2018. The New York area took the hardest hit with a $545 hike in monthly mortgages, raising the monthly housing nut 18.7%, or $3,463 on a median price of $529,900. The Seattle market followed with a $533 increase on a median price of $550,045
Clearly, the monthly mortgage payment increase is related to a specific area’s housing prices. Heading to the Tampa-St. Petersburg area, which holds the bottom spot on the list, the monthly payment difference is only $94. That’s up only 6.9% from $1,375 to $1,470 on a median price of $265,000. Mid-way on the list is the Atlanta-Sandy Springs area which comes in with a $250 monthly increase. That’s a 17% increase, which also reflects rapidly rising area home prices, with a median price of $323,000 in September 2018.
Beau Hodson, founder and senior mortgage loan originator of San Diego-based Transparent Mortgage, offers some perspective on rising rates and the impact on borrowers. “We all know rates have been creeping up. I think now that rates are pushing the 5%-plus number, people are paying more attention,” he said. Consider that people with annual income issues and lower down payments will feel the impact more than others. “If someone is on the edge of qualifying, they might need additional annual income to secure a mortgage now or buy less house. Last year they even might have qualified on a slightly higher priced home with that same income,” Hodson adds.
He offers advice to those buyers who have been on the fence. “I know people who have been waiting for a saner market, especially in the San Diego area. In the meantime, rates will probably continue to rise.”
According to Bankrate.com, the rates as of today are at a national APR of 4.880% for a 30-year fixed mortgage. Bank of America’s current rates on a $200,000 mortgage in zip code 95464 ring in at an APR of 4.951%.
Even though the money pundits are talking rising interest rates contributing to the stock market’s current volatility, rates nearing 5% are still low. Freddie Mac tracks 30-year fixed mortgage rates since 1971. In 1984, the annual average was 13.84%. Those rates certainly make today rates look low.
Paul Habibi, a continuing lecturer of finance and real estate at the UCLA Anderson School of Management, has these thoughts: “Major changes in the real estate market are the sum of a number of variables. If you are trying to determine the direction of the market, you can’t just look at rising interest rates. It’s hard to determine an outcome even short-term based on that one variable.”
Consider the impact of rising rates can also heat up an already hot market.