Recently,
there has been a lot of talk about growing interest rates. The belief is that
rates are expected to rise 1% over the next year. As the government-aided
stimulus decreases, interest rates are expected to rise. So what does that mean
for purchasing a home?
A 1 %
rise in interest rates impacts buying power by 10%. That means if a person
could currently afford a home valued at $400,000, a 1 % increase means the
buyer could purchase a home worth $360,000 to keep a similar monthly payment.
Likewise, a buyer who would consider a home valued at $600,000 prior to interest
rates rising would be able to afford a home valued at $540,000 after a 1%
increase.
Certainly,
this principle demonstrates the power of a lower interest rate, and the impact
the rate makes on buying decisions. For some, this percentage difference may be
the decision-making point from one type of purchase to the other. For example,
this could mean the difference between a condo and a single family home.
However,
interest rates still remain at an all-time low. Even with a projected increase,
the rates fall in lower historic levels. Since 1971, interest rates have varied
from a low of 3% to a high of 16%. Many years interest rates have fallen in the
7-10% range. Ultimately, this means it is still a great time to buy, and most
likely will be throughout the year.
How does
this impact your decision to buy or sell in Durango Colorado? Of course,
the interest rates impact the entire country, so buying power as stated above
affects everybody. In addition, the lower inventory levels discussed in a
recent blog suggest higher prices in the Durango area, as well as La Plata
County. A well informed buyer will look at the combination of potentially
higher home prices and higher interest rates, and decide to purchase sooner
rather than later. We discussed this same scenario over a year ago when
prices were lower and interest rates were lower. Those buyers that
took advantage of the lower priced market and that have tied into a
historically low 30 year mortgage have benefited and will continue to reap the
benefits. The same opportunity exists today. Waiting to buy is
potentially costly. Sellers can expect a stronger market and they are
more likely to be successful in the timing of the sale of a home.
Don
Ricedorff, Broker
Associate, GRI, CRS, CCIM, ABR, RSPS, CDPE
E-Mail: don@durangorealproperty.com
Direct:
970-375-7014
Fax:
970-259-5007
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