There has been something about this down real estate market that has been completely different than other down markets. It is that interests are not only low but they are the lowest they have ever been.
Interest rates have been so low for so long that we have become spoiled. I get asked all the time what the current rates are, and when I answer 5% I get a look like whatever. I quickly realize that this person has never paid 9% or 15% like some people did in the early 80's. Well one of the reasons that rates have stayed this low is because the Treasury has been artificially stimulating the mortgage market.
Well on April 1st that is going to end, the Treasury is scheduled to stop buying mortgage backed securities and allow the market to sink or swim on it's own. Many economist believe that we will see a 1/2 to 3/4 percent increase in interst rate shortly after then and the possibility of 6 to 7% interest rates by years end.
So how does this affect you? Purchase power, when interest rates rise it costs you more and you lose purchasing power. So how much, 10% for every 1% in interest rate rise. Today you may be qualified to purchase a $200,000 home at 5% but if rates go up to 6% you can only purchase a $180,000 home for the same monthly payment and if they go to 7% then you are down to $160,000. Big difference, huge difference.
So is the party over? After April 1st it just may be.
Mike Russell is a REALTOR with Keller Williams Realty. Mike specializes in Johnson County Kansas Homes and Real Estate for sale. Mike is a tech savvy realtor with over 17 years experience. Did you enjoy Mike's Blog? Feel free to subscribe or join Mike on his Social Network to stay up to date on Overland Park, Olathe, Leawood, Lenexa, Shawnee and all of Johnson Counties real estate news and more...
Mike Russell & Associates can be reached at 913-266-5828 or MRussell@KW.com or www.SearchjocoHomes.com