Where Are Interest Rates Heading?


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Last week, I attended the annual Megacamp for Keller Williams. Gary Keller discussed his and the experts' forecast for our real estate market, and they all agree that a shift is approaching our market due to changes in interest rates.
The Fed wants to see interest rates between 5% and 6% because the rates we have now are not healthy for the economy. What does this mean for you?
Let me give you an example. The other day, I had some folks lock in a 30-year conventional loan at 3.625% percent. If they borrow $200,000, they would have a principle and interest payment of $915. If rates go up one by one percent, they can only borrow $178,000 in order to have a payment of $917. If rates go up to that target range of 5.625%, to keep the same payment of $917, you would only be able to borrow $159,000 to buy their home.
That is a 22% loss of buying power due to a two percent change in interest rates. There will still be people moving, and first-time buyers will still come onto the market. However, all the people who bought homes with these low rates may want to upgrade someday. When they recognize their loss of buying power, these people won't move. They'll stay where they are.
The consequence is that fewer homes will come on the market, and there will be fewer buyers. At this point in time, the experts don't believe that interest rates will affect home value. So if you're interested in buying, lock in these low interest rates now.
If you have any questions, give me a call or send me an email. I look forward to hearing from you!

16 episode