When The Cost To Borrow Money Goes Down, Prices Typically Rise
The posted interest rate by FreddieMac for a 30-year fixed mortgage in February 2021 was 2.81%. Just 10 years earlier, that rate was 4.95%, and that was considered low! Who would have thought that we would be living through an era of generationally low interest rates.
No doubt that has been a key contributor to the growth and accessibility of homeownership in recent years, as well as the robust increases in home prices throughout many areas of the country. But that trend will more than likely begin to shift, with rates increasing slightly through 2021.
Just as home values generally increase during periods of low interest rates, they often trend down when rates trend up. Our inventory issues in South Florida will continue to keep home values on the upswing, but increasing interest rates will certainly impact select areas of the market.
The solution? If you are thinking of buying, buy now. If you are thinking of selling, sell now.
FACT: The principal and interest payment on a $500,000 30-year fixed-rate mortgage at an annual rate of 3% is $2,108.02 per month. If the annual interest rate increases by just 1% (from 3% to 4%), the borrower’s buying power is decreased by 11.7%. This means the borrower can now only afford to finance $441,548 if their payment must remain at $2,108.02 per month.