The Interest Rate Close On Steroids
For the past five years low fixed mortgage interest rates of 5% or less have been common place. So much so, that both buyers and sellers have made the assumption that interest rates will remain low indefinitely. Inform your prospects that this is not the case. At some point, possibly in the near future, interest rates will rise to the more typical average range of between 7%-8%. We’ve attached the History of Interest Rates chart showing a 7%-8% average interest rate for every 10 year period since 1965. This is a very important chart to share with every buyer and seller because history repeats itself.
It may be difficult to grasp 7%, 8%, or even 9% interest rates, especially given the recent drop in 30-year fixed rate mortgages to below 4%. There is however, no way these rates can be maintained given the cost to finance our nearly $16 trillion deficit. What does this mean to your buyers and sellers? It means a limited window of opportunity that should be their number one consideration.
See the attached Mortgage Interest Rate Chart. It compares financing a home at 4% interest against much higher interest rates. A buyer purchasing a home at $300,000 at a 4% 30-year fixed interest rate will pay $1,432.00 per month in principal and interest. When the rate increases to 7%, the same buyer will be paying $1,996.00 per month. That’s a $564 a month increase in monthly payments. What does this mean to a prospective buyer interested in your seller’s listing?
The above described increase is also a problem for sellers. Buyers who qualify for the $1,432.00 payment in the above example may not qualify when the principal and interest rate increases to $1,996.00. A shrinking buyer pool means less demand. Less demand typically leads to lower prices for your sellers.