Mortgage rates have risen significantly in recent weeks. Now, that may mean you have questions in your mind about what this means for you if you are planning to buy a home. Here is some information that may help you make an informed decision when determining your home-buying plan.
Effect of Rising Mortgage Rates
As mortgage rates rise, they affect your purchasing power by increasing the cost of buying a home and limiting how much you can comfortably spend. See here how it works.
Suppose you want to buy a $400,000 home (The average home price according to the National Association of Realtors is $389,500). If you are trying to shop at that price point and keep your monthly payment around $2,500-2,600 or less, here’s how your purchasing power may change as mortgage rates rise. Red indicates payments above that limit and green indicates payments within your target limit.
As the chart shows, as rates rise, the amount you can borrow decreases and this could mean that you have to look at homes at a different price point. That’s why it’s important to work with a real estate advisor to understand how mortgage rates on different home loan amounts affect your monthly mortgage payment.
Are Mortgage Rates Going Down?
The rise in mortgage rates and the resulting reduction in purchasing power may make you wonder whether you should wait for rates to go down before making your purchase. The below quote says this is where rates can go from:
“Many homebuyers likely winced . . . upon hearing that the Federal Reserve yet again boosted its short-term interest rates by three-quarters of a percentage point—a move that’s pushing mortgage rates through the roof. And the already high rates are just going to get higher.”
So, if you’ve been waiting for mortgage rates to drop, you can wait a while as the Federal Reserve works to bring inflation under control.
if you’re considering renting it as your option while you wait, remember that it’s going to get more expensive over time. As Nadia Evangelo, senior economist and forecasting director at the National Association of Realtors (NAR), says:
“There is no doubt that these higher rates hurt housing affordability. Nevertheless, apart from borrowing costs, rents additionally rose at their highest pace in nearly four decades.”
It actually costs more to buy a home today than it did last year, but the same is true for renting. This means, either way, you’re going to pay more. The difference is that, with homeownership, you are also gaining equity over time which will help increase your net worth. Now the question becomes: what else matters to you?
Every person’s situation is unique. To make the best decision, contact Wilder Perez Realtor to explore your options.
What Experts Predict Will Happen to Home Prices in the Coming Year?
Experts are starting to forecast home prices in 2023. As they do so, most experts agree that home values in Coachella Valley will continue to rise, just at a slower pace. Home prices have risen at an unsustainable rate in past years, leaving many to wonder how long this will continue. If you are curious about what the future price of your home will be, know that experts are now answering this question. That is good news for homeowners who may have been misled by the media into believing their homes would lose value.
Historically, home prices in Coachella Valley have increased at a rate close to 4%. The average of six major forecasters is 2.5% for 2023. While Zelman & Associates is calling for depreciation, the other five are calling for appreciation. The graph below explains each expert forecast, indicating where they assume home prices will go in the coming year.
To understand why experts are calling for appreciation in the coming year, look to supply and demand economics. According to Dave Ramsey, Financial Expert:
“The root issue of what drives house prices almost always is supply and demand . . .”
Two factors are raising home prices. First, the undersupply of homes is still a problem in Coachella Valley, Indio, Palm Springs, Palm Desert, Thermal, Salton City, etc. There are still not enough homes on the market for the number of people who want to buy them. To add to that, we’re still in a sellers’ market across the country, and in that situation, home prices tend to rise.
Second, millennials are nearing the end of their prime home-buying years. Because they are the second largest population after the baby boomers, demand isn’t going away anytime soon.
Experts predict that home prices will rise next year, although at a slower rate than in the past three years. The reason for this is simple. Real estate is experiencing supply and demand dynamics that will continue for many years.