Interest Rates

Interest rates increased on Monday to 6.75% on a 30 year mortgage. By mid-June Long-Term rates are up almost a pull percent for the year. The effect of this movement has been wide-spread. Foreclosures, which were already at an all-time high, will be pushed even higher. In some areas foreclosures have increased by as much as 100% or last year’s numbers.

The Short-Term rates have also seen huge increase in the past 12 months. The rates move directly with changes in the Prime Rate. Short-Term rates have moved up well over 1% in the past 12 months.

These changes in both rates will create downward pressure on home prices across the U.S. If a buyer were to try to purchase a $300,000 home today they would pay around $3,000 more per year then they would have if they would have purchased it a year ago. This increase would come from the increase in interest rate percentage. The $3,000 per year would equate to $250 more monthly. The $300k home would need to cost about $250,000 to have the same payment it would have had a year ago!

In the short-term we should see prices begin to fall across the country. People have a limited amount of money to allocate toward homes, and with Interest Rates increasing many people won’t be able to afford the home they want unless the price comes down. This is already happening in a number of areas. Some areas may be able to sustain their current prices, but they will be few and far between.

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