We have all heard the news about interest rates rising. Whether it be quickly, slowly, intermittently or not at all, it is important to understand what it means if you are in the market to buy a home. So, how do interest rates affect your home buying power in the Asheville, NC real estate market?
Aside from the obvious fact that your loan will cost more with a higher interest rate than a lower interest, I am confident to say that the second biggest concern with the rates rising is buying power. In a market like we have here in Western North Carolina, where there is so little inventory across many different price points, it is important to understand how little the rates actually need to change in order to affect your ability to purchase the home you want. Here's some rough numbers for example.
Let's say you've been quoted a rate of 5.25% and your max monthly budget is about $1950/month. (For simplicity we will speak simply in terms of Payment and Interest and disregard Taxes and Insurance.) Your lender gives you a prequalification letter and tells you to go find a house up to $350k. You go out with your agent and find a few homes that could work, but maybe you're a little picky about wall color and you don't have to move so you decide to "just wait a few months."
6 months goes by and you keep watching the inventory, before you see a house that you really like come across your email at $370k. You call your agent to see if they can get you a good enough deal to qualify and they request a new prequal letter from your lender. Well, unfortunately, your lender tells you that the rates have gone up 1 point and your 5.25% is now 6.25%. Your prequal amount has gone from $350,000 down to $315,000. I'm sure you can guess, a well priced home in our market at the $370k range is not likely going to offer a $55k discount. So, not only can you not afford the most recent home that came out, but you likely can't afford any of the others you looked at either.
Another more common scenario in the Asheville area we are seeing is people qualifying around the $200k mark not being satisfied with what is available at that price point. They don't believe that 900sf homes and pre-owned modulars can command such value, so they wait. Well, the folks who qualified for 4.25% last year have already lost about $20,000 in buying power. Depending on where in WNC you are looking, you may be out of the market completely.
I'm not advocating that anyone just buy the first thing you see or settle for a total tear down. I am saying, however, that if it's close, GET IT. Our market is moving in one direction and the value of a dollar will continue to decrease here as interest rates rise and our mountain town flourishes. If you have an opportunity to invest in our real estate market, take it as soon as you can. If nothing else you can enjoy what you purchase, build equity, then upgrade down the road.
If you want more information about how rates will affect your buying power, give us a call at (828) 707-5642. Special thanks to Sean Spacil of Supreme Mortgage Lending for providing insight.