When mortgage interest rates rise by 1 percentage point buyers lose 10% of their purchasing power.
If a buyer can afford a mortgage payment of $1,000 per month, in today's market with a 4.5% loan they can borrow $200,000 for their mortgage. Assuming the buyer puts down a 20% down payment this translates into a $250,000 home purchase. If the buyer waits until interest rates rise to 6.5% but wants to keep the mortgage payment still around $1,000 the loan amount would drop to $160,000 - so with the same $50,000 down payment the home purchase price would need to be $210,000 or less. At 8.5% the affordable mortgage amount plummets to about $130,000. That is quite a difference in the type of home that you can purchase.
Mortgage Interest Rate history, as tracked by Freddie Mac since 1971, seems to indicate that we can ?reasonably expect to see rates easily in the 8.0% - 9.0% range again, creating a large negative impact on ?potential buyers purchasing power.
So what does this mean…This might possibly be the greatest time to purchase a home or investment property. Not only will you be taking advantage of lower property prices, you’ll actually be purchasing more home for you money with rates being as low as they have been as of late.
With the current state of the economy, interest rates are going to have to rise at some point to compensate for inflation. Take advantage of the rates while they are still historically low and purchase much more home for your money.