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What Happens When (not IF) Mortgage Interest Rates Rise?
At some point in the future, mortgage interest rates will rise. Not in the next few weeks, probably, and maybe not even for months. But at some point rates should rise. If sustained inflation continues they may rise sooner. How could that impact real estate markets? Here are some of my thoughts:
1. When rates rise, they probably won't rise much. Remember in 2018, the 30-year fixed-rate mortgage was approaching 5%. Today it's around 3%
2. When rates rise, buyers may be able to afford less......UNLESS rates rise because of rising incomes which may offset this.
3. The intensity of multiple bidding MAY subside in certain areas. Yet the forces of supply and demand still remain, regardless of interest rates.
4. Profitability of companies could be impacted as debt service will be more expensive......but.....if prices have gone up this could be offset.
5. Those with large swaths of cash will get better returns on their cash investments....and have more disposable income. Consumer spending comprises roughly 70% of the US GDP.
6. When interest rates rise, they will probably rise slowly.
7. When interest rates rise because of inflation, it is because things cost more to build too.....including homes.
8. Rising mortgage rates could fuel better inventory levels and more rational bidding.
Now that we KNOW - for certain - that mortgage interest rates probably cannot remain this low forever, sharing this with your clients now may be wise. A $500,000 mortgage at 3% is almost $600 cheaper per month than a 5% mortgage. That's a $215,000+ savings over 30 years......
SOURCE: Leonard Steinberg
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