What in the world is happening to interest rates?
Well, look around; are you witnessing inflation that we’re not hearing about on the news? Have the prices of cars gone up? Have gas prices risen? Have prices in the grocery stores increased? Have home prices gone up?
The answer to all of these questions is a resounding yes. But the fact is that the consumer price index is calculated by the government, and it doesn’t reflect all of this. This will have a big impact on your buyers.
“If interest rates increase by just 1%, buyers’ purchasing power will decrease by 10%.”
Let’s assume for a moment that your client could get a 20- or 30-year conventional loan at a rate of 3.75%. If that rate goes up by just one percentage point to 4.75%, that will decrease the buyer’s purchasing power by 10%. That means if your client was looking at a $300,000 property and the rate went up 1%, you’d have to show a $270,000 property for them to afford it the same.
We know that the Fed funds alone don’t control interest rates; the Fed Funds is based on another model. Mortgages are priced based on the 10-year Treasury because they’re more long-term, and that’s what you need to keep an eye on. If the note starts to decline in value (which also indicates a spike in interest rates), that’s when mortgage rates will increase.
If you have any questions about interest rates and/or our changing market, don’t hesitate to reach out to me. I’d love to help you.
