Much of the conversation with buyers lately has centered around what the market is going to do. It seems everyone wants to know two things – (1) what’s the market going to do, and (2) when are rates going up? At the risk of sounding flippant (and failing miserably, I’m sure), my response is usually “who cares?“. I mean, if you’re a serious buyer and the right house is on the market, in your price range, you buy it – right? And with rates ranging somewhere between 3.87% and 4.63%, is 1/8th of a point going to make that much of a difference? When you’re ready to buy, you buy – there’s no sense trying to time or “game” the market.
Dan Green, of The Mortgage Reports, decided to take it a step further today when he posted that a 1% change in mortgage rates means a significant change in what you can afford – proof that waiting and trying to time the market really can have a negative on what a person can afford. It’s worth a read … and take this away:
Purchase price has less to do with home affordability than you think.
The real key to home affordability is mortgage rates.
Check out the chart – a 1% change in mortgage rates means a change of 10.75% in home affordability. That’s significant. While his purchase price numbers might be a little high for our area, the math still applies. Let’s assume a sale price of $300000 – instead of a buyer being able to afford a $300000 home in Blacksburg, by waiting for that “perfect buy” they allow their purchasing power to fall by nearly 11%, resulting in being able to afford something for $267000.
Before you say “oh how said, they can still afford something for $267000”, don’t be fooled. The numbers work across the board – by waiting and watching prices, trying to time the market and get the best deal on the market at its lowest point, and failing to watch mortgage reports, you ignore the one thing that applies to every mortgage loan in the market … rates.
Nice post, Dan, and thanks for doing the math. If you’d like to get your own mortgage rate quote online, check out this link.