Earlier this year, the conventional wisdom was that mortgage interest rates would rise to the 4% range by the end of the year, so when the rates rose to 5% abruptly in early April, it took us all by surprise.
The agents at Golden Real Estate are noticing a reduction in bidding wars, which might be due to the increased cost of financing a home purchase. It may be too early to draw any conclusions, but the interest rate increase is not looking temporary at this point, so we’ll have to see how the statistics for April and May come out.
Principal and interest (P&I) on a 30-year $500,000 loan at 4% has a monthly payment of $2,387. At 5%, that rises to $2,684. Earlier this year, you could get that loan for 3%, which would cost $2,108 per month for P&I.
How does this affect affordability?
With a 3% interest rate, a person could get a $637,000 loan for the same P&I as a $500,000 loan at 5%. That is enough of a shock to disrupt many buyers’ purchasing plans.
I’ll be watching and let you know.