Mortgage rates will be starting to rise from this week on. From the 3.9 to 4.0 percent average rate in the past five months on a 30-year fixed mortgage, the new rates will soon be in the range of 4.3 to 4.6 percent. Usually the initial phase of rising rates can quicken the decision to sign on the dotted line as consumers do not want to face even higher mortgage rates later on. However, a prolonged increase will shrink the pool of eligible home buyers.
Here are some raw statistics to contend with. Let’s say a person is committed to paying at most $1,000 per month in principal and interest to be comfortably within this person’s budget. A mortgage calculator will spit out that at a 3.9 percent rate (last week’s rate), this homebuyer will be able to take out $212,000 in mortgage amount. At 4.5 percent (near future rate), the figure drops to $198,000, or the equivalent to a drop of 7 percent in purchasing power. The homebuyer therefore has to shoot for lower price points.
Another way to view the impact of rising rates is to compute the income required to get the $212,000 in mortgage funds as in the above example. At 3.9 percent, the income would have to be $4,000 per month, assuming that this particular person only feels comfortable with a mortgage payment taking up 25 percent of his or her income. At 4.5 percent, the mortgage payment to buy that same home would be $1,074 per month and the corresponding monthly income requirement would be $4,296. Now, how many people have a monthly income between $4,000 and $4,296 or on an annual basis between $48,000 and $51,552? According to the Census income distribution table, 2.9 percent of the population is between these two incomes. This income gap also represents how many people would have qualified to buy this particular example home before and after the mortgage rate change.
Simply put, if mortgage rates rise to around 4.5 percent in the upcoming weeks from the previous 3.9 percent, then home sales are expected to be impacted by 3 percent. If the 30-year fixed mortgage rate rises to 5 percent then the impact is closer to 6 percent.
This illustration is what economists call a static analysis. It assumes that other variables are not changing. In the real world, the confluence of factors makes the data analysis less clean. The 3 percent impact may not be meaningful if, say, job gains pick up steam or mortgage underwriting standards become less restrictive. Then there are the cash buyers, making up about one-third of all buyers in the past year, who would care squat about rate changes. Still, it is worth keeping in mind that rising rates will put some drag on the broader housing market recovery.
JP And Associates REALTORS (JPAR) is one of the top 100 independently owned brokerages in the US. A full service real estate brokerage firm specializing in real estate sales and marketing services with multiple offices across the US and expanding quickly. JPAR is also one of Real Trends top 500 Brokerages in the US for volume and sales and in the top 1% in the US for sales.
Our mission is to provide extraordinary services and exceed our clients’ expectations by always committing to the highest levels of professionalism, ethics and standards in the real estate industry.
JP and Associates REALTORS is a real estate company with a solid structure and foundation built around service and productivity. We believe in providing a fun and rewarding environment for all our REALTORS® and therefore always ready to support our REALTORs® Associates in any market and in any condition. All our REALTORs® will always strive to close more transactions in a given year than the average REALTOR®. Our goal is to recruit and retain the most professional, better trained REALTORs Associates in the local market.
If you are interested in a new career in real estate or already have a real estate license but wish to learn more about our company please contact us directly to set up an interview. We offer our agents a 100% commission plan, company leads, training and mentoring and coaching from TOP Producers with no office, desk fees or monthly marketing fees ever. We are a full service brokerage at a transaction fee cost.
At JP And Associates REALTORS we strive to exceed our Clients AND our Associates expectations.
General Inquiries: firstname.lastname@example.org
Office Number: 1 (800) 683-5651
Texas Real Estate Commission Consumer Protection Notice
#1)The Shops at Clearfork Neiman Marcus has already opene
"Gary has been helping my family in the process of getting into a home. He is a great guy and very patient when it comes to looking at multiple listings. He is very quick to respond to questions via phone calls, texts, and emails. We've been impressed with his knowledge of homes in the Ft. Worth/Arlington area in the style and price range we are considering."