How do the rising interest rates impact me as a buyer?

These interest rates! There’s a lag between “feeling” market conditions each day and confirming them with real statistics because there’s usually 25-30 days from when buyers make offers to when their transaction closes (the escrow period). A certain chill has definitely hit our market over the last month that we haven’t seen in quite some time. Due mostly, I believe, to rising interest rates coupled with tumultuous swings in the financial markets. 

I’ve recently been working with a client to help her acquire her first home, a condominium. Her financial capabilities and payment comfort zone puts her in the under $700K price range (still achievable here for a small condo). We found one she liked priced at about $650K, but when we sat down to do the math at the current 5.5% loan rate, reality quickly set in. Principal, interest, property taxes and insurance (PITI) coupled with monthly HOA dues would put her total payment at $4080 per month. Had she been able to jump into the market when rates were around 3%, payments would have been 23% less at about $3319.

If you’ve seen my Market Statistics Report, you know the average price for a single family home is north of $2 million in Santa Clara County. Using the same basics from above — 3% interest rate verses 5.5%, a 20% down payment, $2 million dollar home, and assuming property tax payments are rolled in — total monthly payments jump from $8,909 to $11,248. Up 26% over a delta of 2.5% in interest rates.

When will interest rates peak and how high will they go? Will buyers move down on the price curve, endure higher payments, or bow out of the market completely? I’ll be watching and will let you know what I find.