Interest Rates Are Rising

    So you’re thinking about buying a home. Here’s what you need to know about rising interest rates.

    Did you see this week that interest rates climbed again? If you’re in the process of shopping for a new home, that’s an important announcement for you. But why?

    Consider this a brief crash course on how interest rates work and why rising interest rates may mean that now is the time to purchase a new home.

    What You Need To Know About December’s Interest Rate Increases

    1) Interest rates determine how much your home will cost you over the lifetime of the purchase.

    Interest rates determine the cost of your money—that is, how much it will cost you to borrow money from a bank. So when you finance a home through a lendor and take out a loan for $150,000, the interest rate determines how much you’ll pay the bank for that money. Each lending institution sets its own interest rate for mortgages, but most are very similar to each other as banks have to stay competitive.

    When you hear about interest rates in the news, it’s usually one of two things: (1) Banks are responding to some change in the market, like rising home prices or increased demand for homes; or, (2) Banks are responding to a change in federal interest rates, which are set by the Federal Reserve and which determine the cost of money lent from one bank to another. Between these two circumstances, interest rates are a major indication of economic growth for our country.

    Let’s see how much house you can afford

    2) Interest rates just increased, and they’re projected to continue climbing in 2017.

    Earlier this week, the Federal Reserve increased its interest rate, which determines the cost of money lent from one bank to another. For just the second time in 10 years, the Federal Reserve increased its “federal funds rate”, boosting it to .75%. As a result, banks responded with slight increases in their own interest rates, including the rates for 30-year mortgage rates.

    So here’s where we stand at the end of 2016. (Remember, this is the average of all major lendors’ interest rates.)

    At the end of 2016, we’re on an upward climb. Thanks to for this data.

    And the Federal Reserve has already suggested at least two more rate increases in 2017, which would bump interest rates even further.

    3) That said, it’s all relative—current interest rates remain tremendously low by historical comparison.

    Another thanks to for this data.

    When you see how much lower interest rates are today compared to the 1980s, it’s no wonder rate increases come as a shock today. Still, many analysts say that homeowners today have been spoiled by these historically-low interest rates…

    4) The higher they go, though, the less home you’ll be able to afford for the same amount of money.

    How far will your home-buying dollar stretch?

    Whether we’ve been spoiled by low rates or not, the bottom line is, the higher the interest rate climbs, the more your home will cost, and the less home you’ll be able to afford for the same amount of money. The chart above shows the challenge facing families looking to purchase new homes: When you think about the monthly payment you can afford, the interest rate will dictate how much home you can get with that payment.

    5) That’s compounded by rising home prices—purchasing a home will continue to get more and more expensive.

    Special thanks to the Wichita State University Center for Real Estate for the local home appreciation data—see why they say now’s the time to buy in their annual report here.

    Here’s what home prices have done in Wichita over the last 4 years. Note the steady increase in prices, year over year. That means, in addition to interest rates, home prices continue to impact the long-term costs of your home and how much home you can afford.

    And there’s a circular effect, as home prices and the interest rate feed off each other. Historically, large interest rate hikes have initiated further bumps in home prices. That means, as rates continue to increase, it’s likely that home prices will increase, too.

    Here’s how historical changes in interest rates have impacted home prices.

    6) Bottom line: Now may be a great time to buy a home or upgrade your own—and we can help!

    The window of low interest rates and low home prices is closing rapidly. With a new President comes a lot of uncertainty about how home markets will respond. Will rates continue to increase as the economy responds positively to Trump’s election? Will home prices continue to climb as buyer demand grows? All signs point to YES.

    So if you’re considering purchasing a home, now may be the perfect time to do so. At the very least, now is the time to see what that process would look like. Our qualified Buyers’ Specialists can guide you through the process of pre-approval so that you’re ready when your dream home comes onto the market. In fact, it may already be there…

    Take advantage of this rare opportunity for home-buyers. You won’t be sorry!

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