There has been a lot of talk lately about rising interest rates and the effect they will have on the housing market. Rates have more than doubled from last year, and when you combine it with the current inflation rate, buyers’ purchasing power has certainly taken a hit. Having said all of this, rates are still at very low levels historically.

Let’s take a look at the current rates (bankrate.com) and the average 30-Year Fixed Rate from the 1970’s up to today (fred.stlouisfred.org):

So, how much does this cost homebuyers?

The average price for a 2-bedroom property in King County is $585,000; while the average 3-bedroom goes for $780,000. Let’s ballpark this average out and use $680,000 for our purchase price. The average 30-Year Fixed Rate in June of 2021 was 2.98. So, what do monthly payments for the same house last year compared to this year look like? Also, how much will the latest increase from 5.78% cost? Here are the numbers for $680,000 purchase price with 10% down:

As you can see, buyers are currently paying $1,100 more PER MONTH than those who bought the same home this time last year. Interest paid over the life of the loan will obviously increase at the same rate of the interest percentages. What may be more surprising, and more important to understand, is how much a small rate hike will cost over the life of a 30-year loan. The recent hike of 0.21% will cost homebuyers almost $30,000 (or $1,000 annually) more.

While this realization can be extremely frustrating for homebuyers who missed out on the all-time low rates, it’s important to remember where we are at historically. We are still on the low end of rates over the past 50 years. Owning real property has long proven to be one of the best ways to hedge against the dilution of the U.S. dollar, and if you haven’t noticed, inflation has arrived. Appreciation rates have slowed, but home prices are predicted to increase at a healthy level of 5-9% annually. Inventory shortages and a large qualified buyer pool will continue to fuel a seller’s market in King County. So, despite the spike in interest rates, it won’t be getting cheaper to buy. The best time is now!

Thanks for reading. All monthly payments are an estimate and you should talk with a preferred lender to find your exact numbers. As always, please contact me if you’d like to chat about the market or your specific situation!

Your Friend and Realtor® Bryce Morgan