Home Affordability

Rising Interest Rates Impact Housing Affordability and Mortgages

Rising Interest Rates Impact Housing Affordability and Mortgages

While economists ponder where the stock market will trend tomorrow, a new home buyer is more concerned with a different trend – their interest rate. The same is true for an existing home owner who is looking to refinance. A day in the life of a typical real estate agent is often asked about mortgage rates. Almost always are they asked about mortgage rates and what happens with rising interest rates impact housing affordability and their mortgage.

To date in 2017, so far we’ve seen one interest rate hike when the Federal Reserve’s Federal Open Market Committee (FOMC) meet earlier this year. They voted to raise interest rates for the first time in 2017. Yet while this was an historic measure, it’s also not likely the last either. This year alone, it is expected the Federal Reserve will hike rates one or two more time and continue into 2018.

Why are Interest Rates an important Housing Affordability factor?
As home buyers enter the real estate market, they often review interest rates and attach sensitivity to the rate along with the purchase price and housing affordability. It is their largest purchase and therefore they need to watch their bottom line. As mortgage rates rise, there is an opposite effect on housing affordability.

Interest Rates Impact Housing Affordability

Rising Interest Rates have an immediate Impact on Housing Affordability.

Interest Rates Impact Housing Affordability

When interest rates rise, a home becomes more expensive. Here’s a classic example using the typical $250,000 home purchase.

HOME PRICE $250,000

Down Payment: 20% or $50,000
Mortgage: $200,000
Interest Rate: 4% rate


Interest Rate: 4% rate
Payment: $954.83 per month
*This payment does not include taxes and other expenses.


Interest Rate: 5% rate
Payment: $1,013.37 per month
*This payment does not include taxes and other expenses

DIFFERENCE: 1% or $58.54 a month!

Over one year, this is over $700 more expensive.
Over 30 years, it’s a $21,000 difference.

Why Pay More if you Don’t have to?

It’s easy to say if someone can’t pay an extra $50 a month, then they shouldn’t buy a home in the first place. There is some truth to that statement, but we are Americans and the American way is to buy happiness. And to take that $50/month and divide it by $5 Starbucks cups of coffee – so it’s really just ten a month a person needs to sacrifice to buy their new home. However, so many people buying a home are already çash strapped and this is a large amount to consider small or marginal.

Also, people often comment that they don’t think rates will rise that drastically over the near term and they may be correct. However, just last year, rates averages 3.75% while today they hover around 4.25% – a 50 point basis or a half of one percent. That is still far off rates in the 5 or 6 percent range most have been comfortable with just over a decade ago.

Moving forward into the second half of the year, there are many factors that Fed Chair Janet Yellen and the FOMC will have to incorporate into their analysis including fiscal stimulus or expansionary issues from the current administration. Will it be enough to stave off inflation? Will home prices continue to rise? How will the stock market fair? What will treasure notes perform? Will jobs increase? Learn today how interest rates impact housing affordability.

When we break down the moving factors in mortgage rates, we see they follow many other trends. Typically, interest rates track the direction of the 10-year Treasury note and the 30-year Treasury bond. What also drives the Federal Reserve Bank is the stability of the housing market. Currently, the outlook remains strong due to the combination of limited inventory coupled with strong prices. We see strong prices remain with high demand for what does come on the market. The U.S. Department of Commerce recently reported that February’s housing starts (new homes being built) have hit a 10-year high.

According to Bloomberg:
Permits for single-family homes, where building costs and sale prices are the highest, rose 3.1 percent in February to an 832,000 rate that, in good news for a thinly supplied new home market, is up 13.5 percent year-on-year. This is offset, however, by a downturn in multi-family units where permits fell 22 percent in the month to a 381,000 rate that is down a yearly 11.2 percent.

A driver in interest rates is inflation and according to Charles Schwab, inflation has increased in recent quarters and was moving close to the Fed’s 2% objective and will likely stabilize according to recent FOMC statements around 2 percent.

Recently Bankrate.com noted mortgage rates rising again over the past few weeks. The 30-year fixed-rate mortgage recently rose to 4.44% or another quarter point for the year. This was the highest rate for the 30-year mortgage since it hit the same level back in April 2014.

Many economists and financial planners recommend many home owners and home buyers buy down their rates. Since the star of 2017, rates have inched up nearly 50 basis points (half a percent) and they could continue to go higher. As long as the Fed remains optimistic that the economy is strong and continues to move ahead, rates will continue to see new levels over the coming months and years ahead baring a tragedy or major economic event.

Future Interest Rate Indicators

Another major moving target and consideration for interest rates impact housing affordability and the markets that drive them will be two manor economic policies that do not seem to have consensus or agreement in Congress:

    1. Healthcare Reform – true reform that will cover as many people at the best price possible. If reform brings extra disposable income home, it will help lift the economy and rates will surely follow along with home prices.
    2. Tax Reform – lowering corporate taxes in theory will spur on new purchases by Fortune 1000 companies. It should also help small business to expedite hiring that will result in more people in the labor force and thereby increasing take home pay.

As we look forward, no matter if you’re officially in the market today or not, you’re always in the market. You need to understand how rising interest rates impact housing affordability and mortgages. Some are ready to buy tomorrow or sell their home to downsize – and even those who may not need a mortgage, a solid understanding how rates impact housing affordability will make you an educated investor and participant isn’t he real estate market.

If you’re able to buy a home today or can be in the current market, now is a great time to contact a local REALTOR. Preferably one right here with Home Marketsite and a local mortgage professional or lender. READY TO SELL? If you’re looking to sell your home, contact us today to get a complimentary home market analysis. You’ll also learn how Home Marketsite agent’s can help you Take More Home!

Real Estate Market 2017

Summer Housing Outlook 2017 for Southeastern Pennsylvania

Summer Housing Outlook 2017 for Southeastern Pennsylvania

As we close out the month of real estate here in PA’s Delaware Valley & Lehigh Valley – we learned from NAR (National Association of REALTORS) on Wednesday that existing home sales have declined 2.3% which nationally represent an adjusted annual rate of 5.57 million units. That came as a surprise to Wall Street as they were expecting a drop of just 1 percent. However, those looking for a home to buy in the early spring market have realized this about what lies ahead for the summer housing outlook 2017 – pricing pressure and tight inventory.

Summer Housing Outlook 2017The Problem: Inventory

The recent report details how we are up just 1.6 percent year over year. So what’s causing the slow down? Inventory has shrunk by 9% since last year. It’s the 23rd straight month drop. Anything listed

The Good News:

1) Fewer Days on Market
29 days on market in 2017
39 days on market in 2016

2) Higher Median Home Prices
In April, the median home price increased 6% (outpacing salary raises) to $244,000. This was the highest gain since June 2016.

Going Forward: Demand is driving the market

April’s report comes after a strong March housing market report that saw home sales reach their highest pace in over 10 years even with short supplies. Existing home sales rose 4.4 percent in March after it had fallen 3.7 percent the previous month of February. The demand in the market for housing coupled with smaller inventory resulted in a typical homes selling faster in March versus February.

There is another glimmer of hope too as more first time home buyers are entering the market. This will increase demand as it will only be balanced out by inventory settling the price pressure coupled with mortgage rates and buying power.

Regionally, the local Pennsylvania real estate market experience similar results. Here’s what we’ve seen and what we expect to see for the Summer Housing Outlook 2017.

Bucks County Market Outlook

Sales in Bucks were up 6.8% compared to last April and prices exceeded last April by 10.7%. Inventory increased by 3.7% during the month, but is still at its lowest April level in more than 10 years. See Bucks County homes for sale.

Chester County Market Outlook

April sales were exactly the same as last April but are up 7.9% year-to-date. The median sold price was up 1.6% ($5,000). Inventory increased 9.8% during the month and reduced the deficit compared to last year to 12.4%. Don’t miss thousands of homes for sale in Chester County.

Delaware County Market Outlook

For the sixth straight month prices were well above the previous year’s level, with the median sold price up 2.6% ($5,000) compared to last April. Inventory continued to improve and increased 8.3%, but is still 13.1% below last year.

Montgomery County Market Outlook

April sales were up 3.4% compared to last year and inventory increased 5.1% with 166 more listings for sale in Montgomery County but inventory remains well below previous years for April.

Philadelphia Market Outlook

For the first time in over a year, sales fell short of the previous year’s level in April as sales were down 2.1%% compared to last April. Prices, however, continued to rise quickly as April was up 12.1% over last April. This marked the 26th consecutive month that the median sold price exceeded the previous year. This sets the stage for the Summer Housing Outlook 2017!

Ready to buy or sell your home in PA? Contact us today. We’re here to help you every step of the journey.

NOTE: NAR’s existing home sales measures sales and prices of existing single-family homes, condos and co-ops for the nation overall.

Home Appreciation

Home Appreciation: The keys to Your Home Value

The facts behind Home Appreciation

Small Homes Bigger AppreciationOn average, a home is expected to increase in value around 2-4% every year. This is tied to many factors including the strength of the economy, interest rates and type of home buyers ready to make a purchase. However, just last year, home seller’s saw an average growth of 6% on their home value. That’s great home appreciation.

In order to survey the entire market, Realtor.com looked at what drove home appreciation and ways the average home owner could add value to their home. By reviewing and analyzing millions of data records and data points over the past five years, the team of researchers discovered certain homes and features helped drive appreciation higher than others.


Small Homes Appreciate FasterIf your home is smaller than 1200 sq feet, you were able to see an average increase in value over the past five years of 7.5%, This compared to larger homes over 2,400 and those appreciated just 3.8% a year. While you can argue that’s semantics because the smaller home will be priced less than a home twice it’s size – that’s true. Yet the percentage increase is nearly 2x for the smaller home over the larger home.

Smaller homes, Bigger Appreciation. Why are smaller home values on the rise faster than a traditional 2,000+ square foot home? One answer: millennial buyers. These new buyers are first-time home buyers who don’t need a larger home and prefer a smaller one at the 1,200 square foot range versus those double in size. The other group that is beginning to drive it too: Baby Boomers. Those in their sixties are finally ready to downsize by selling their 2,400 as foot home for the 1,200 sq foot home. That’s leading to a larger demand than the market is ready to receive at the same time and has created rising prices for these small homes.

A subset of the small home category are those with just two bedrooms. The 2-Bedroom home appreciate around 6.5% a year (vs the 5-Bedroom home around 4.3% every year.


Those homes with the following features appreciate each year the following percent on average over the past five years. This will vary by market and overall home condition.

* Finished basement: 4.6%
* Fireplace: 5.3%
* Granite countertop: 2.5%
* Hardwood floors: 5.7%
* Hot tub: 3.9%
* Open floor plan: 7.4%
* Patio: 6.8%
* Stainless Steel Appliances: 3%

Source: realtor.com®

HOT HOME APPRECIATION FEATURESTo help a home sell in a competitive market and as fast as possible, many of these features are simply required including the open rooms, granite kitchen, finished basements and outdoor living areas. When home buyers tour a home, these are also their favorite home features.


When comparing the architectural style of the home, the following did better than others:
* Modern or Contemporary Home: 7.7%
* Bungalow: 6.5%
* Traditional: 5.6%
* Craftsman Bungalow: 3.7%
* Victorian: 2.2%

As is the case with more ornate and decorative homes such as a Craftsmen Bungalow or a Victorian, both are considered more upkeep and require more maintenance than a traditional style home.


Value of the ViewFinally it is true what they say about real estate: location, location, location. There is a value of the view. If your home has a park view, home appreciation is nearly 8% a year. These homes also hold value over a falling market because you can’t just pick up a home and move it to a new location. It’s either got it or not. If you home has a mountain view, it appreciates on around 5% every year. Lake views also appreciate well averaging nearly 4.9% while ocean views appreciate the least at around 3.6% each year. Homes in the vicinity of salt air face maintenance issues above and beyond a traditional home in say the woods. They also risk being in flood areas and require additional insurance and home protection against storms.

As you begin to sell your home, rely on a REALTOR to help guide you through the process of listing and selling your home – give us a call or contact us – we’d love to help you sell or buy your next home.


End of Year Interest Rate Increase

Year End Interest Rate Increase

It’s happening. We are beginning to see the year end interest rate increase we’ve been anticipating throughout 2015. As we approach the end of 2015, we are seeing interest rates begin to rise. The average US long-term mortgage rates are edging higher this week following three straight weeks of declines.

In light of the upcoming Fed meeting scheduled for December 15 & 16 and our Interest Rate Outlook 2016-2017, perhaps the move is beginning sooner than expected. Here’s a look at rates for fixed- and adjustable-rate mortgages this week and over the past year (2015):

Current Avg ( (12/11/15) Last week (12/04/15) 52-week High 52-week Low
30-year fixed 3.95 percent 3.93 percent 4.09% 3.59%
15-year fixed 3.19 percent 3.16 percent 3.25% 2.92%
5-year adjustable 3.03 percent 2.99 percent 3.03% 2.83%
1-year adjustable 2.64 percent 2.61 percent 2.65% 2.37%

First, you need to find a property and submit a agreement of sale. You cannot apply for a loan if you don’t have a property to purchase.

Next, if you own a home and have put off refinancing, NOW is the time to lock a rate and refinance your loan.

Finally, as the year end interest rate increase is underway, it’s never to late to lock in your rate. Find your PA Home for sale with Home Marketsite.