By Mel Dorman, October 15, 2018
The federal reserve recently raised the prime rates again this week with the intention to make several more in the coming 12 months.
This is how it will impact you…
1) Sellers who wait to list may have to wait to sell
We are quickly moving from a seller’s market, where inventory is low and buyers are making multiple offers, to a different market. As interest rates rise, buyers lose purchasing power and demand slows. Soon, sellers are competing for the buyers left standing. It is a balanced market when we have 6 months of inventory on the market. As homes sit on market, costs increase for sellers awaiting offers.
2) Avoid new construction, focus on move-in ready homes
Waiting for your dream house to be built may for the same price as a resale is an attractive deal. However, while you are busy selecting countertops, a rising interest rate may push that dream home out of your price range. You cannot lock an interest rate more than 60 days before the home is ready to close, so any delays in construction to be devastating.
3) Waiting a few months to buy may mean waiting a few years to own
For every 1% interest rate increase, buyers lose 10% buying power. If you qualified for $300,000 at 4.5%, then at 5.5%, you will qualify for $270,000. Buyers that are right on the margin of qualification may be pushed out due to set Debt to Income ratios for mortgage qualification.
4) Paying for an interest rate is worth considering
If you are right on the margin of what you can afford, then buying points to lower your interest rate may be a good idea. Rates are expected to rise to 6% by end of 2019.
5) Appreciation will slow as the market balances
Portland has seen year over year appreciation in the 5%-12% range, depending on the neighborhood. Playing catch up with sister cities such as San Francisco and Seattle, has made Portland a very hot market. Sellers truly begin to lose in this situation because as interest rates rise, number of qualified buyers decrease, and appreciation slows. In the end, they have a house that is difficult to sell and the yield grows smaller the longer they wait to do so.
Melissa Dorman is a Licensed Broker with Yascha Group at Living Room Realty in Portland, OR. Follow Yascha Group on Facebook.
Mel Dorman
Broker | OR & WA
She/They
Ten years ago, Melissa was living in a slum in Kolkata, India, helping over 200 women escape sex trafficking by providing alternative work at a social business...
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- T: 503-567-4697
- melissa@livingroomre.com
