Rising Interest Rates Shrink Home Dollar{Comments Off}
The cost of a house is not the purchase price. The cost of a house is made up of the price AND THE INTEREST you will be paying over the life of the mortgage.
The National Association of Realtors (NAR) just released their 4th quarter housing research report. In the release, they reported that home sales rose 15.4% in the 4th quarter over the 3rd quarter. They also showed that prices remained stable during the year: However because interest rates have risen dramatically in the last 90 days, the real cost of purchasing a home has also increased.
The median home price today is $170,000. If you were to purchase a $170,000 home today instead of 90 days ago it would cost you an additional $32,000 over the life of the loan.
By sitting on the sidelines for the last 90 days a purchaser lost:
- $89.44 a month
- $1,073.28 a year
- $32,198.40 over the thirty year life of the mortgage
Rising interest rates decrease affordability. When a lender qualifies you for a loan, they qualify you for a payment limit not a home price. Rising interest rates shrink the value of your home buying dollar.
Not to forget that interest rates are still at an all time low. When I purchased my home twenty years ago, interest rates were at 13%. Most buyers needed adjustable rate mortgages to qualify for a house. 1 year ARMs were at 9%.
I was interested to learn recently from my local public radio station that in Europe, they don’t offer fixed rate mortgages. The banks don’t want to take the risk.
