Low Interest Rates Provide Opportunity for Home Buyers

By Mark Spain Real Estate

At Mark Spain Real Estate, we excel at making a buyer’s dream of homeownership a reality. Current rising home prices and greater demand across the Southeast place us in a seller’s market. However, the current environment provides advantages to homebuyers too.

Low interest rates, increased buying power, and improved affordability offer a favorable opportunity for current homeowners looking to move to a larger or higher valued home. It is an ideal time for home buying!

Mark Spain Real Estate is here to help you take advantage of the current low interest rates. Contact us today, we’d love to help you find the home of your dreams. Our trusted partners at Shelter Home Mortgage can even help you finance your new home with no down payment!

Interest Rates Are Low

By buying a home now, you may be able to lock in a mortgage at one of the lowest rates in many years. The vast majority of housing economists project that mortgage rates across the U.S. will remain below 4% in 2020. The National Association of Realtors forecasts a 3.80% 30-year fixed rate. Fannie Mae predicts the 30-year fixed rate to be 3.60% in 2020.

While most millennials and Gen-Yers can’t remember a time when interest rates weren’t in the single digits, the reality is that today’s rates are at abnormally historic lows. This is especially true when you consider that back in the 1980s a typical mortgage rate was between 10-18 percent.

Interest rates have a significant impact on your monthly payment. For example, if you decide to buy a home with a $200,000 30-year fixed-rate mortgage at an interest rate of 3.8%, your mortgage payment (principal and interest only) would be $932 per month. If you decide to wait until you’re really ready to buy and rates are up to 7%; that same house would cost $1,331 per month.

Home Buying Power

Your fixed rate plays a major role in determining your “home-buying power”. Buying power is the amount of home you can afford. Despite low interest rates, homeowners and prospective buyers are learning they can afford more house.

“A 1% point drop in rates—such as from 4.5% to 3.5%—leads to a monthly savings of $167 on a $200,000 mortgage,” says Lawrence Yun, chief economist for the National Association of Realtors.

While there are many considerations when buying a home, a lower interest rate can result in a higher loan approval. For homeowners who purchased their current home at a higher interest rate, 2020 could be a great opportunity to sell your current home and seek your new dream home all while paying the same mortgage. 

Here’s an example of how a lower interest rate can mean more buying power for a homebuyer budgeting for a $1500 monthly mortgage payment.

In this scenario, the interest rate yields a difference in buying power of $25,222.

The higher the loan amount, the more an interest rate may affect your buying power. Let’s look at an example with a monthly principal + interest payment of $2,500. 

Here we see the interest rate yields a difference in buying power of $42,037.

First-Time Homebuyer Demand

About 8.3 million to 9.2 million first-time homebuyers are projected to become homeowners from 2020 to 2022.  Millennials have been a driving source of first-time homebuyer demand as the bulk of that generation enters their 30s next year because expanding their family and investing in their future is often top-of-mind for many.

“Millenials are well educated and understand the value and advantages of buying a home vs. the cost of renting. The advantage of buying a home and having an appreciating asset versus a monthly rental expense that does not add any long term financial wealth, is part of their long term financial planning and wealth building” said Darrell Edquist, Senior Loan Officer at Shelter Home Mortgage. 

Many first-time and prospective homebuyers are struggling to find a home in their price range. Because of this, builders are starting to shift toward building more entry-level homes.

“Homebuilders are getting smart about how to delight millennials in order to reduce pain points,” wrote Ken Leon, director of equity research at CFRA Research. “The industry is shifting to entry-level homes with more open space.”

If you’re a first-time homebuyer who has been hesitant to take the leap into homeownership and are in a position to buy, now is the time to lock in a lower mortgage rate.

Interested in taking the next step toward homeownership? Whether you are buying your first home or simply looking to upgrade, we are here to serve you. Contact us today!