“I
woke
up this morning and couldn't find my socks, so I called information. She said
they were behind the couch. She was
right.” Reading the words of comedian Stephen Wright
isn’t quite the same as actually hearing them with his deadpan delivery, but
they’re still funny. The same can be
said for timeless wisdom: whether you hear it coming directly from the lips of
a wizened old sage or you read it in a little missive such as this, it’s still
wisdom, right?
They
say a picture’s worth a thousand words, so you’re about to get 2,000 words’
worth right here: I’m going to show you two graphs that are going to speak
volumes about buying power and interest rates –
far more than I could convey if I tried to write over 2,000 words (and probably
put you to sleep).
Obviously,
this first graph shows how even a slight change in interest rates can affect
someone’s buying power in the real estate market. There’s a fairly big swing between what
someone can afford at 4.5% and 5.5%. For
example, with a monthly P&I payment of $1,600, a buyer could afford a home
just under $400,000 at 4.5%, while that same payment with a 5.5% interest rate
could only buy them a $350,000 home –
those are vastly different neighborhoods, and that could also spell the
difference between staying in that home for 7+ years or having to move in 3-4
years to accommodate a larger family, not to mention what home prices may be in
3-4 years when that move is necessary.
This
next graph shows interest rates going back to when they peaked in July, 2008 at
6.63%. I don’t have a crystal ball, and
I have absolutely no insider information about what will happen to interest
rates in the next ten years or even ten months, but using historical data has
always been a fairly good way to predict what’s coming. Clearly, interest rates aren’t going to shoot
up into the stratosphere tomorrow, but they look like they’re certainly on the
climb. The takeaway from this is very
simple: if you or anyone you know is on the fence about buying, these two
graphs make a very good case for getting off that fence and start looking now –
you’ll get a better night’s sleep in a home than on a fence, right?
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