How much do mortgage rate increases affect the market?

By | October 16, 2020

In light of the crazy increase in bond rates, mortgage rates have increased to its highest level in a couple years, however rates are still considered to be  historically low and the housing market is still considered a Borrower’s Market in light of everything.  That said, let’s take a look at how this will affect buying power.

For every 1% mortgage rates rise, your purchasing power falls by 10.75%.  So, using round numbers, If you were interested in buying a home today and were approved for a loan of $200,000, your loan approval would only be good for about $180,000 if you waited until rates rose by 1%.

When mortgage rates hit 3.31%, affordability peaked.  The Fed is doing everything they can to pull us out of the housing slump so low rates were necessary, but it is unrealistic to think that rates will stay that low.  Nobody at this point really knows what will happen to home prices as rates increase, but Ben Bernanke is a genius regardless of what you think.  Here is a guy who executed TARP (Bank bailout program) in the middle of an election and had BOTH political parties sign off on it.  In regards to Quantitative Easing, I believe Bernanke will pull back at just the right time when employment gets to about 7% which will be the benchmark of a healthier economy.

So, right now, we are still in a borrowers market.  Home prices are going up but rental rates seem to go even higher from a percentage standpoint.

If you have recently been preapproved for a house, I advise you to get re-preapproved.  Rates jumped nearly 75 basis points in the last 2 days so affordability will be affected.