If home prices and/or mortgage rates increase in the next year or two, home buyers could end up with significantly less buying power than they have today.
What’s one of the biggest reasons it’s a great time for many Americans to buy a home right now? Low mortgage rates. Home loan rates have drifted back down to historically low territory, stretching your home-buying dollars farther than many people who bought homes in the 80s or 90s would ever have envisioned.
For example, take a $200,000 home loan at 4 percent. The monthly mortgage payment, not including insurance and taxes, would be about $955. At 5 percent, the monthly payment increases to about $1,074; at 6 percent, nearly $1,200. One rule of thumb is that each 1 percent increase in mortgage rates reduces affordability by about 10 percent.
Higher home prices also zap buying power. The CoreLogic HPI Forecast projects that home prices nationally will increase by 5.3% annually from June 2016 to June 2017. Each housing market is different, of course. But if home prices in your area increase over the next year, you’ll get less home for your money. The combination of predicted higher home prices and higher mortgage rates could make for a mortgage payment that’s hundreds of dollars more a year or two from now than it would be today.
Of course, many other factors come into play in the decision to buy a home, such as how long you plan to stay in your home, the stability of your job, how much money you’ve saved up for a down payment — and whether your landlord is planning to increase your rent (again!). Dreaming of a home of your own? Visit us and and see just how far your home buying dollars can go today.