“How much can I afford?” It’s amongst the most common questions probed by a home buyer at the beginning of nearly every home search in the country.Changing mortgage rates do more to affect home affordability than changing home prices.
If that appears odd to you, think back to the last two years. Quarter-after-quarter, home affordability wedged near all-time highs even as home values have improved from “the bottom.” Home affordability didn’t progress because home prices were lower — it improved because mortgage rates were at their bottom.
Each time rates ticked lower, a buyer’s purchasing power increased. When mortgage rates reached their lowest in November of 2012 (3.35%), affordability had peaked.
Lately, the trend has reversed. Mortgage rates have pushed past 4% and the answer to “how much can I afford” has changed as well.
Take, for example, the theoretical home buyer in Myrtle Beach who was pre-approved in May 2013 for a maximum $475,000 loan amount, supposing 20 percent down. While she’s been shopping, U.S. Mortgage rates have been on the rise. Unfortunately, with each 0.125 percentage point increase to rate, her maximum purchase price has dropped $7,200. Today, that same buyer can have the funds for a home for $424,326.
Do You Know Your Buying Power?
Mortgage rates had its ups and downs over the past few months. Today’s home buyers — pre-approved or not — should contemplate a re-pre-approval; a re-verification of terms and a re-qualification for a mortgage.
Interest rates and purchasing power affect home prices, as well. A lower rate allows buyers to offer higher prices for homes. When affordability drops since the rates rise, the number of buyers who can afford higher prices descents too, this, of course, lessens the demand. When demand drops, there is less competition for homes. It is competition for homes that is driving prices up in the present market. In the past, when the competition for homes reduces, prices have “softened”, meaning the steep increases slowed or even flattened.
The takeaway here? Now is definitely the time to purchase your new home this year. That said, it would be intelligent to start getting finances in order if you’re considering financing a home in the near future. If you’ve been sitting on the fence, it is time to take a leap of faith. And a pre-qualification for a home based on current rates is a good place to start. Here at The Trembley Group, we have all the resources to help you in this process which includes two incredible lenders.
If you’re thinking of purchasing a home in the near future, it’s going to be more economical to do so sooner rather than later.
Need help? Call The Trembley Group at 843.945.1880 ext. 100 and we’ll help you look for the perfect listing or buyers agent!
At The Trembley Group, we pride ourselves on being the experts at more than just selling real estate. We are local residents, some of us have been here for a lifetime. The rest of us will be here until the end of time. We love living, working, and playing in the diverse backyard of Coastal Carolina, and look forward to helping you live and love your dreams soon too. Please reach out to us by phone or email for personalized service and one-on-one advice.