Recent history has provided us with interest rates hitting record lows, but according to Freddie Mac and Fannie Mae, the writing is on the wall with recent rate increases! The Mortgage Bankers Association also predicts that they will continue to rise over the next four quarters. Of course, everyone understands that lower interest rates mean lower monthly payments, but what is often overlooked, is that every increase in rate decreases purchasing
power!

What this means for buyers is the ability to afford less house. For sellers, the impact is that the pool of buyers in their price range becomes smaller and smaller. A .75% rate increase could reduce buying power by as much as 10% as indicated below in this chart courtesy of ‘Keeping Current Matters’.

Buyers who are pre-approved are not necessarily assured that they will be able to purchase in the price range in which they initially begin, so keep a close eye on interest rates. Taking too long to make a decision, or hesitating over a few thousand dollars at the purchase price, could cost you more than you think.