Interest Rates & Sales Price Correlation

Interest rates continue to be at historic lows but as the economy starts to rebound, the Federal Reserve will begin their tough decisions on raising rates to manage inflation. For first time home buyers, you should bookmark a website that will carry the Feds actions so you are aware of any adjustments. Certainly, the media will be in frenzy as interest rates trend up because that is a positive sign for the economy.

But, interest rate increases are not a great sign for those first time home buyers sitting on the fence. As interest rates trend up, first time home buyers will not be able to afford the same sales price of home. As interest rates rise and the economy rebounds, you should expect housing prices to also start to increase. The key is the rate in which these benchmarks change. Hopefully, the change will be gradual to give you time to buy!

Remember to look for trends. The following chart was prepared by my mortgage partner, Mr. Don O’Dell with Allen Tate Mortgage to illustrate housing affordability as it relates to interest rates.

Assumptions:
1. FHA minimum down payment of 3.5% requires decent to a good credit rating.
2. Conventional minimum down payment of 5% requires excellent credit.
3. Using an annual base salary of $50,000 and not excessive non-housing debt.
4. Remember homeowner association dues could affect the sales price amount.

FHA                                                                                           Conventional
Sales Price                            Interest Rate                                   Sales Price

$230,000                                   4%                                            $210,000

$210,000                                   5%                                            $194,000

$195,000                                   6%                                            $180,000

$180,000                                   7%                                            $166,000

$165,000                                   8%                                            $154,000

If you are renting in Charlotte, there are plenty of home buying programs available to even assist with down payments and closing costs. The bottom line, WHEN interest rates go up and it will happen, the house price afforded will go down. also, most likely, your monthly costs will increase. Get off the fence and think about the future!
Tomorrow, we will revisit credit ratings.