A Look at Buyer Purchasing Power with Rates at Historic Lows

One of the main factors in the recent surge in home sales is that mortgage rates continue to stay around historic lows keeping a traditional buyers purchasing power at high levels. At some point in the near future conventional wisdom leads one to think that rates will eventually have to rise for the benefit of the whole economy.

I thought this would be a good time to look at the difference in payment for a purchaser if interest rates escalate and how it could impact the market. It is also a great tool for those of you who are beginning the search for a home.

Some people feel this is an excellent time to make a long-term purchase due to these rates and also unload a property that you will be selling in the next 3-5 years. The record low interest rate not only aides the buyer but also the seller who has been saved in a further drop in property value during the great recession.

The economy is showing signs of rebounding and consumer confidence in the California home market is on an upward trend. However, will the market be able to sustain an eventual hike in interest rates when salaries are not increasing?

As you will see below, a purchaser’s payment is impacted quite a bit by even a half-a-percentage point increase and the banks are very strict in staying within the confines of the maximum amount a purchaser can qualify for based on a % of the purchaser’s gross income which is usually in the 36-41% range**. Please note that property taxes, insurance and other liabilities factor into this and you are strongly advised to speak to a licensed lender about the process since this information can and will fluctuate. I am happy to put you in touch with some of the best lenders in the business and we are happy to address any questions you may have.

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