How ’bout those Rising Interest Rates…

doom and gloom

doom and gloomThe talk of the town these days is rising interest rates, and what it all means for home buyers and sellers.  In the last month or so interest rates on a 30-year fixed mortgage rose 3/4 – 1% within a 9 day period.  That’s a pretty astonishing hike, not to mention fast.

In the simplest terms, for those purchasing a $500,000 home with a 20% down payment, you will now pay @$4,000 more per year on your mortgage than you would had you settled on your home in May.  That’s $333 extra a month.

While a lot of folks are screaming doom and gloom, I’m not so sure it’s a bad thing.  Historically, rates haven’t dipped below 5% in the last 40 years until about 2008- the start of our latest recession.  The housing crisis along with low rates created opportunities for many buyers previously shut out of the market.  With the housing market (especially in our local market) decidedly in recovery mode, the feds are raising rates.  They can’t prop up the housing industry forever.

Freddie Mac Chart

Anyone familiar with the close-in DC marketplace knows that we’ve seen the return of “irrational exuberance”.  Those wishing to purchase property in the “under-$1-million” range are seeing an abundance of competition and multiple bids.  If the rising interest rates tamp down the degree to which homes are being overbid, then this is a good thing for buyers.

It may not happen all at once.  We continue to suffer from a lack of inventory, with absorption rates under a 2-months supply (a 5-6 month supply is considered healthy and balanced). But over time I would expect things to even out a bit more, making it a friendlier place for buyers.

Sellers, have fun while it lasts! Buyers, too!