Posted: 15 Jul 2013
Trulia just reported that asking prices have jumped dramatically and the increase is accelerating:
No expert is expecting home prices to shoot up 18% in the next twelve months. If anything, price appreciation may slow as rates and inventories increase. Investors will begin to slow their purchases and the first-time buyers expected to take their place will be working within a pre-set budget in many cases.
Buyersâ€™ Purchasing Power
Letâ€™s look at an example: A young couple is looking for a home and have predetermined that their budget will only allow them to spend $1,000 a month on a mortgage. At todayâ€™s mortgage rate of 4.5%, they could afford a $200,000 mortgage ($1,013 principal & interest). However, if rates jump to 5%, they wouldÂ have to lower their mortgage amount to $190,000 in order to keep their monthly payment where they need it ($1,020). At 5.5%, the mortgage would need to be no more than $180,000 ($1,022).
The Impact on Prices
This decrease in buyersâ€™ purchasing power will have an impact on home values going forward. We do not believe it will cause a decrease in prices. However, we do believe it will likely cause current rates of appreciation to slow.
If you are thinking about selling your home, donâ€™t get carried away with current headlinesÂ about home price increases that have taken place over the last twelve months. Instead, call a local real estate professional. They will be best prepared to explain where prices are headed over the next six months.