Mortgage rates are a full percentage point higher today than they were in May and are now at 4.39%. Please note that the rate you will pay is based on many factors, including your own credit score. So while the world talks about 4.39%, that may or may not be YOUR rate.
The Federal Reserve (The Fed) has indicated it could slow it's bond purchasing (this affects rates) and that may keep interest rates low. Mortgage rates tend to follow the yield of the 10-year Treasure note, which has also jumped on speculation that the Fed may slow it's stimulus.
MOST IMPORTANT...Interest rates are still a bargain for those who can qualify. (Remember when the rates got down to 6% and we were having a party because they were so low!) The low rates are fueling the real estate market, however, over the past month or so, real estate sales have slightly slowed because of the rate hike. Now, I say slightly...meaning that when a buyer makes an offer on a house, there may only be 2-4 offers rather than the 8-12 just a couple of months ago. The market has not stopped at all.
That said, buyers should be out in force looking at homes and buying NOW. Why? As rates have increased so have prices. Prices in the South Bay are up anywhere from 15-28%, depending on where you are buying. That's a lot of money at our price ranges! Add a 1% increase in the interest rate, you can see how the cost of housing has just dramatically increased. The interest rate you pay does not include "Closing Costs" and you need to make sure you have that amount of money to bring to the table to close your escrow. My preferred lender, Michelle Coolidge at Eagle Home Mortgage can help you work the numbers and let you know where you stand. Michelle can be reached at 310-818-1011.
So what does the interest rate have to do with how much house you can afford? Well, for every 1% increase in the rate, the buyer loses 10% of his/her purchasing power. That means that if you qualified for a $500,000 house, when the interest rate increases by 1%, you then will qualify for a $450,000 house. Add the price increases, use just 15%, and you can see you will definitely be looking in a different neighborhood!
For more information and assistance with buying or selling a home, please contact me at 310-928-9035. My team and I are here to help you with your real estate plans.