…if interest rates increase by one-half point from the current rate, as has been predicted by many economists, a buyer with a loan amount of $200,000 will lose approximately $11,000 in purchasing power.
The interest rate differential can be applied to all buyers in all price ranges because with every increase in interest rates, a buyer’s purchasing power declines. As mentioned before, economists are predicting a rise in interest rates in the year ahead and the tax credit expires on April 30, so this is truly a moment in time.
The moral of the story is that as long as your clients buy a home by the April 30 deadline, their purchasing power is at an all time premium. This is a historic opportunity; don’t keep it a secret!
J. Lennox Scott in April:
Yesterday, MSNBC ran an AP story about the effect of rising interest rates on a person’s ability to buy a home. I’ve spoken at length on this subject over the years and I’m happy to see the media is catching on. The bottom line is that it’s important for potential buyers to understand how quickly they can get priced out of the housing market with each uptick in interest rates. The following article does a good job of explaining this concept:
That would be the misleading AP scare-mongering piece that was thoroughly mocked here in April.
So we’ve established the theme here. Fence-sitting buyers, you had better buy now because if you wait, interest rates will skyrocket and you will be screwed! Priced right out of the market! Forever!
Okay, now here’s J. Lennox Scott just a couple days ago:
The tax credit is no longer available, but interest rates have dropped, including on FHA loans which are down nearly half a point since May 1. That means buyers using an FHA loan to buy a $200,000 home will have nearly $9,000 more purchasing power.
…buyers purchasing a $400,000 home using an FHA loan have close to $18,000 more purchasing power. In other words, for the same monthly payment, today’s buyer could purchase a home worth $18,000 more than they could have on May 1, 2010.
Gotta love the logic on display here. Buy now, because interest rates are definitely going to go up, and when they do, too bad for you buyers, you can’t afford a home anymore. If I’m wrong and interest rates go down instead, it’s good news for the buyers that ignored me a few months ago, who should definitely go out now and buy a more expensive home!