Here's How One Percent Can Cost You More Than $50,000!

Interest Rates and Purchasing PowerLast July, I wrote a story titled, You Can’t Afford to Wait to Buy Your Next Home.  Many of you heard my warning, a few acted, but most people sat on the sidelines.  

If you fall into this third category and are still considering purchasing a home, why are you still playing the waiting game?

This time last year most experts predicted that Nashville would see a 1-3% rise in prices by the end of 2013. 

Did you see my latest Market Report for June 2013?

Median prices in the Nashville Market are up nearly 15% or $28,000 since January 2013.  The low inventory and an increase in buyer activity in Nashville have set the market on fire.  Monthly sales are at a six year high. 

Adding fuel to the fire is the rise in interest rates.  Interest rates took a huge leap following the Federal Reserve’s decision to halt the bond buying program later this year.  If you did not already know, the FED has been purchasing up to $85 billion each month in bonds.  This has kept interest rates artificially lower in an attempt to support the ailing economy and the housing market. 

Due to a rebound in the market across the nation and some positive economic news, the Federal Reserve decided it was time to announce the beginning of the end of the bond purchase program.  This announcement caused a sharp drop in the stock market and an immediate increase in mortgage interest rates. 

Interest rates are nearly one percent higher than they were a few weeks ago.  Many people have asked me, “Steve, Why are you so concerned over a 1% increase in rates?” 

That is a great question! Most people think that one percent seems like such an insignificant number, and interest rates are still well below historic levels. 

Does 11% get your attention?

11% is what you lost in purchasing power while the interest rates climbed 1%.  If you could previously afford the payment for a $400,000 home; your new maximum purchase price is approximately $356,000.  Couple this with rising home prices and your dream home is fading away.

If that did not work, how does $51,875 sound to you?

$51,875 is the additional interest you would pay over the life of the loan when interest rates climb from 3.5% to 4.5% on a $250,000 mortgage.    I think we all could find a better way to spend $50,000 than on mortgage interest.

Can You Hear Me Now?

The good news for America:  the economy is recovering.   The bad news for future interest rates:  the economy is recovering.  Improving economies go hand-in-hand with rising interest rates. 

Still not sure what to do…Relax, Take a deep breath and Give me a call!

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