Hello all! I’m Michael and welcome to my BRAND NEW website! I will be posting news as it breaks about the Real Estate market in this blog, so be sure to subscribe or like me on Facebook as I will share these posts there as well.
That being said, let’s get into it and start talking about a topic that a lot of my clients bring up: how does the interest rate affect the real estate market? The simple answer is, when interest rates go up, home prices go down. This is because even the smallest change in interest rates affect the purchasing power of the buyer in the eyes of lending institutions.
Let’s go with an example here: say John and his family of 4 are looking to purchase a home in Los Angeles for $1,000,000. He wants to put $350,000 as a down payment and finance the $650,000 remaining. His household brings in $144,000 a year or $12,000 a month. He’s been pre-approved on the contingency that his debt-to-income ratio is 25%, so he can spend $3,000 a month on his home. As you’ll see in the pictures below, a simple .22% difference changes his purchasing power. As a result, his offer will be lowered by about $15,000, lowering home values in the area due to the affect of comparable properties.
I hope this post was helpful to you. Please subscribe to these posts, like me on Facebook, and click the “Contact” link above to get in touch! Thanks.
–Michael G. Miles