Mortgage rates effect Buyers purchase power


As snow begins to blanket Denver, this is actually the calm before the storm. Many consumers are already looking forward to see what the real estate market has in store for us in 2017. Early market indicators are pointing towards more of the extreme seller’s market we have been working in for the last few years. However, there is a Wild Card in the mix.

 

That Wild Card is interest rates.  As prices continue to climb, it increases the likelihood of a consumer needing to use a loan to purchase that property.  As prices go up and if interest rates also go up, the purchasing power of a borrower decreases.  It’s not only buyers who need to be concerned with increasing interest rates, but also sellers.  For sellers, with every hike in interest rates, their pool of potential buyers decreases, along with their ability to gain top dollar. Here is a quick example.


 

If a seller lists their home at $450,000 at a 4% interest rate, the buyer’s monthly payment is $2,148. If interest rates increase to 4.5%, the seller would then have to drop their price by just over $25,000 to maintain the same amount of buyers in their qualified pool of purchasers.