Higher interest rates, along with higher home prices, may prompt more home buyers to pull the trigger to act quickly before costs rise even more. Every one percent increase in rates equates to about $30,000 in buyer power. That's a huge variable to keep in mind.
Could Interest Rates Get Buyers Off the Fence?
“It will get people sitting on the fence to decide, ‘We better do something or it’s going to cost us money,’” says Margaret Dixon, a real estate sales associate with Crye-Leike in Tennessee.
At the end of 2012, 30-year fixed-rate mortgages averaged 3.52 percent. Last week, Freddie Mac reported that 30-year rates averaged 4.47 percent.
“A 1 percent increase usually lands around $30,000 in buying power,” says Todd Reynolds, a real estate professional with Goodall Homes. “That’s the difference between a starter home and a bigger home — or a bonus room.”
Higher interest rates, along with higher home prices, may prompt more home buyers to act quickly before costs rise any more.
“They realize the house of their dreams may never be cheaper than it is today,” says Reynolds. “It creates a sense of urgency.”
Economists are predicting that mortgage rates will likely rise to 5 percent or 5.5 percent in 2014.
“Most people realize the [3 percent-range interest rates] are gone, and they’d better be glad to get 4.5 percent,” Jay Bradshaw, an agent in Cumberland, Tenn., told The Tennessean.
Source: “Rising interest rates may boost real estate market,” The Tennessean (Dec. 24, 2013)