How The Rates On The Market Impact Buying Power
Monitoring interest rates, home prices, and the state of the housing market is a vital part of my profession. I find myself more concerned with the activity happening behind scenes. This is the activity that has the most impact on my clients’. This activity has the most effect on their most valuable asset — their house?
Divorce couples split their assets when divorcing. One usually has plans to keep the home, which usually means buying the other out. When embarking on this decision it is vital that they factor in the severity of rates on the market. Important factors to considered.
Effect of rising interest rates:
- The mortgage payment for a $500,000 home in the beginning of 2022 at a 3.25% interest rate would have been roughly $1,740 per month. Today, that same $500,000 home at the current rate of 6.85% increases the payment by 50% to $2,621.
- The payment for a $1M property under the same circumstances has also jumped by 50% from $3,481 to $5,242.
Demonstrating how mortgage rates impacts buying power, which impacts property values. Buyers are qualified for mortgages based on the monthly payment — that’s how buyers budget and how lenders assess risk. So, in order for those same buyers to qualify and afford the same home they could earlier in the year, home prices would need to be reduced by 33.6%.
This means that a $500,000 home needs to be purchased at $332,000 in order to have the same payment as the first of the year. A $1M home needs to be purchased at $664,000, and so on.
When entering into a divorce agreement where the home value is an asset, considering all factors is important. As well as knowing what your buying power is before you agree.
You can do the math, divorcing homeowners who have two options regarding the house: refinance it to buy their ex’s share of the house, or sell it. The first option (equity buyout) is less likely than ever.
As unfortunate as this is for families already going through a devastating phase of their lives, A Certified Divorce Realtor can minimize the damage — with a proven, methodical approach to navigating the transaction.
If you are interested in learning more about how a Certified Divorce Real Estate professional can assist you, schedule a call.