Now that the real estate market in the Tampa Bay area has hit bottom, almost everywhere, prices are now moving upwards.  As an example, if yesterday a buyer was looking at a house for $200,000 with a 3.5% mortgage and just qualifies, that is great.  Now, let's assume that interest rates jump by a full 1% and nothing else has changed for the buyer.  This is mostly for demonstration purposes, since interest rates don't normally jump that fast.  Now the buyer has 10% less buying power, so they can now qualify for a mortgage of only $180,000, which is 10% less.  This is because the interest and principle payments would be about the same total dollars, just slightly redistributed.  

Now, a seller has a house worth $200,000 and wants to move up to a house worth $250,000.  If the value goes up by 5%, his house is now worth $210,000.  At the same time, because a rising tide floats all boats, the $250,000 house he wanted to buy is now worth $262,500. Thus, by waiting for his house to go up by $10,000, the house he wants to move up to has gone up $12,500, costing him $2,500 for waiting.

Rising interest rates on mortgages hurt the purchasing power of the buyer, and in turn, lowers the pool of buyers for a given house.  This ultimately can harm the seller because he waited to put his house on the market while waiting for prices to increase.  This also makes the move up house he wanted harder to qualify for.

Of course, it is possible prices will go up faster than interest rates, however this is not very likely.  In short, if you  want to sell your house and move up, do it today.  Interest rates are not going to stay at the current record lows forever.  You are welcome to visit our website and scan our Sun Bay Associates real estate newsletter to follow the real estate market trends.

For now, Happy New Year!!