As we enter the era of rising interest rates – almost a certainty – many are being VERY dramatic about this topic as if this has never happened before. Some cry hysterically that rates are jumping to 10%-plus. They are not. They are extremely low and hopefully remain under 5%, which is still VERY low. We have been spoiled rotten by many years of low interest rates. So let’s explore how in this lies some GOOD NEWS….
1. When interest rates rise it’s usually a sign of an overheating or rapidly growing economy. And rising incomes. And rising rates may slow inflation.
2. Anyone who was thinking of buying a home now may want to accelerate the process to lock in rates before they go higher. This could fuel home prices to rise till the supply-demand ratios become more balanced.
3. As rates rise, fewer people will be able to afford certain homes you and your buyers may be bidding on, thereby reducing the number of multiple bidders especially in areas that are overheated with more limited supply.
4. Sellers may re-adjust their pricing expectations to more realistic levels.
5. The excessive price increases should slow, creating more buying opportunities.
6. Higher rates may start to alleviate the dramatic inventory shortages around the country.
7. The price gougers may lose their audience as people simply cannot afford to pay those extra pricing excesses.
8. Mortgage lenders who now may see lower volume may become more competitive to keep volume up.
9. Most people don’t stay in a home for 30 years. The average is around 13 years. So the extreme focus on 30-year fixed rate mortgages may shift further towards shorter term.
10. The excessive pace of the market could slow a bit to normal allowing people to breathe better while making these big decisions.
11. Maybe some building costs will ease, or the excessive builder price-gouging that some are getting away with right now, thereby bringing down some building and renovation costs.
12. I would suspect those who were waiting to sell may now see the window for peak pricing closing….and list.
13. Those who rely on savings stand to earn more interest income from their cash investments…..they will have more money to spend, further fueling the economy. About 70% of the US economy is consumer spending.
14. Higher rates may drive some to rent instead of buy, further fueling rental prices….and making investment properties even more attractive to those diversifying investment portfolios. Higher returns in an inflationary environment can be a ‘safer’ place for cash.
Lets not forget: a Home Buyer getting a 4% interest rate on a 30-year fixed mortgage on a $400,0000 home has a monthly mortgage payment of $1,900. The monthly payment for this same buyer with a 5% rate on a 30-year fixed mortgage, rises to $2,138. A 1% increase in interest raises this monthly payment by $238, or roughly 13%, a very manageable number for most in a strong economy…..with rising incomes.
The Dinsmore Group would like to give content and writing credit to Leonard Steinberg @theleonardsteinbergteam. He shares his valuable insights through his wonderful Compass wide journal, Compass Contemplations. Mr. Steinberg holds the esteemed title of Chief Evangelist at Compass.[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]