When it comes to buying or selling a home there are many factors you should consider. Where you want to live, why you want to buy or sell, and who will help you along your journey are just some of those factors. When it comes to today’s real estate market, though, the top two factors to consider are what’s happening with interest rates & inventory.
Mortgage interest rates have been on the rise and are now over three-quarters of a percentage point higher than they were at the beginning of the year. According to Freddie Mac’s Primary Mortgage Market Survey, rates have climbed to around 4.8% for a 30-year fixed rate mortgage. The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power. Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford to buy will decrease if you plan to stay within a certain monthly housing budget. The chart below demonstrates the impact rising interest rates would have if you planned to purchase a $400,000 home while keeping your principal and interest payments between $2,020-$2,050 a month.
A ‘normal’ real estate market requires there to be a 6-month supply of homes for sale in order for prices to increase only with inflation. According to the National Association of Realtors (NAR), listing inventory is currently at a 4.3-month supply (still well below the 6 months needed), which has put upward pressure on home prices. Home prices have increased year-over-year for the last 80 straight months. The inventory of homes for sale in the real estate market had been on a steady decline and experienced year-over-year drops for 36 straight months (from July 2015 to May 2018), but we are starting to see a shift in inventory over the last five months. The chart below shows the change in housing supply over the last 12 months compared to the previous 12 months. As you can see, beginning in June, inventory levels have started to increase as compared to the same time last year.
If you are planning to enter the housing market, either as a buyer or a seller, let’s get together to discuss what changes in mortgage interest rates and inventory could mean for you. Contact the Ternullo Real Estate team today!