With the recent increase in interest rates, I would like to take a moment to analyze just what this means to our home prices.

As we have been talking about for the past few months, housing affordability is our major real estate market issue. There are many buyers who want to own a home, but, if they cannot afford the mortgage, they cannot buy the home. As home prices adjust to a level of affordability for the purchaser, the home will be purchased. This is proven as we see well priced homes selling quickly, some even with multiple offers.

Now let's look at the effect of the recent run up in interest rates. Over the past week, we have seen another ¼ percent increase in our open market interest rates. What does this mean to housing affordability? While this may only be a ¼ percent, its actual effect to home prices is a little over 2%!!!

To use round numbers - take a $100,000 mortgage at 6.5% - the PI payment for this is $632 per month. At 6.75%, this payment increases $16 per month to $648. To create the same monthly payment of $632 at the higher interest rate, your loan amount must be $2,301 less or 2.3% less!! Now, multiply this by 3, as in a $300,000 mortgage, and your customer can now afford 2.3% of $300,000, or $6,900, less in a home. So the same house last week, with the prices staying current, is now costing the purchaser, $6,900 more.

Bottom line in some very simple terms, with this analysis: Every ¼% increase in interest rate can affect our overall home affordability by 2.3%. Perhaps we will see this effect roll into median home values by an equal amount. So, when keeping your sellers abreast of the market, should you be more aggressive in pricing your listings for this fact alone? Did every home just fall in value by 2.3% this week? If interest rates continue to climb, home values may continue to be under pressure. Getting ahead of this potential pricing wave is a matter that should be discussed with your clients.

The above analysis is only looking at this past week. When you look back over the past couple of month, our rates have climbed more substantially then the ¼ percent outlined above. Consider, if you priced a home several months ago, what the impact of the more substantial interest rate increases we have experienced!

Ok, we have focused the above on our Sellers - now consider a Purchaser!!! Think of this overall increase in homeownership with interest rate increases. It is doubtful that the Sellers will actually decrease their home prices by a factor larger than the one outlined above. So, if interest rates continue to increase, the overall effect of their housing cost will rise. If a purchaser is looking to jump in, or move up into a larger home, the longer they wait, the higher their overall costs will be!!

With inventory levels high, offering a great selection to a purchaser, if a home i s priced right for the current market conditions, there is not a better time than now to buy a home!! Actually, the best time for a purchaser was a few months ago, when the rates were lower with a well price home, but, that is history. All we can work with is today.