Interest Rates - Where Are We?
Posted: April 14, 2022 by Elsa Woods
Rates have moved higher in 2022 but still at historical lows. Why the increase and how does it change your buying power?
Interest rates are very sensitive to inflation. High inflation is typically offset by the Feds raising their overnight rate or the prime rate. With inflation the highest in 40 years an added step is being taken – shrinking the balance sheet or quantitative tightening. What is the result?
“There is no way anyone has an extraordinary clear view as to what the unwind of the balance sheet — especially as large as it is now — is going to do to financial markets and the economy,” said Seth Carpenter, global chief economist at Morgan Stanley, at a recent NABE conference.
Yes, we are still at historic lows! If you have entered the real estate industry in the last three to five years, it is hard to fathom but the chart below shows the reality.
30 Year Fixed Rate History
www.macrotrends.net
What does this mean for buyers?
Most industry experts agree this is not a housing bubble. The difference between now and 2008?
· 12 million more households in 2021 but 3 million fewer homes to buy
· Housing to income ratio was 30% vs 20 to 26
· Stricter lending rules
· Inventory very low – buyer demand VERY HIGH!
Yes, increased rates will slow the market. How is that positive for you, the buyer?
· Slows appreciation from 20%+ to single digit appreciation
Let’s compare 2021 to 2022:
Rents: According to ApartmentList.com the rents in the major metro areas of North Carolina from January 2021 to January 2022 have risen between 20 and 25%. That is an increase of $200 to $300 a month. NO WEALTH BEING BUILT.
Mortgage: Example below based on appreciation, interest rate increase, factoring in income increase of 10% in private sector.
4 Total housing costs that include mortgage payment, property taxes, maintenance, insurance, and utilities are not considered burdensome if they account for no more than 30% of income. Michael Hyman, Research Data Specialist, NAR
|
2021 Home Price $305,000 Loan Amount $244,000 (20% down) Rate: 3.375% Payment: $1079 principal and interest Income: 5,395 P&I Ratio: 20% |
2022 Home Price $350,000 Loan Amount $280,000 (20% down) Rate: 5.25% - Rate on 4.08.2022 Payment: $1546.17 principal and interest Income: 5,934 P&I Ratio: 26% |
Let’s say appreciation moderates to 5%. $350,000 x .05% = $367,500. INCREASED NET WORTH BY $17,500.
Now is still an excellent time to buy! Call us for more information.
Presented by: Your Team at Advantage Lending
NMLS#56871
7521 Mourning Dove Road, Suite 101
Raleigh, NC 27615
(919) 532-7300
Listings courtesy of Canopy MLS as distributed by MLS GRID.