Updated almost 9 years ago on . Most recent reply
Interest rates on the rise
What do you foresee happening with in the housing and rental market now that Janet Yellen has increased rates and has alluded to at least three more hikes in 2017?
Most Popular Reply
In the long run, it will erode the purchasing power of buyers.
1% increase in rates (going from 4% to 5%, as an example) would be $59 extra per month for every $100,000 in home loan. Or $21,386 extra interest paid over the 30 year life of the loan.
The equivalent in house price would be a $12,500 increase to have the same monthly impact.
On the margin, most people with purchasing power will just absorb the impact. However, buyers that are under pressure due to their DTI ratios might have to shift to lower cost homes to keep the monthly payments in check. Depending on the area of the country and median incomes, housing prices will start to see some pressure to accommodate the buyers.
Buyers in many parts of the country are already frustrated due to low inventory. Chipping away at their purchasing power might prevent them from buying in the near future.