How Will These Moves Affect Potential Home Buyers Budgets?
Loking at how NAR’s Affordability Index would change in a higher rate scenario gives an idea of what may be in store. At the national level, moderete home prices relative to incomes give the market space to accommodate a rate increase. The monthly payment increases by $11 per month per 10 basis point increase in the mortgage rate, and the income needed to qualify to purchase the median priced home increases by just over $500. The current median income family household earns nearly 1.7 times the income needed to qualify to purchase the median priced home. If rates were to rise to 4.2 prcent and prices and incomes were to stay steady, the median family income would be just less than 1.6 times the income needed to qualify to purchase the median priced home.
All in all, a 1% rise in rates on a $200,000 mortgage would add $118.81 per month to your mortgage or $1,425.72 per year. That is a number that might not kill a home purchase, but it might for some buyers that were already pushing the envelope. This can limit the number of potential buyers for a given property.
Senior Mortgage Banker
50 Route 46 West
Parsippany, NJ 07054