The Greenville real estate market has been red hot throughout the pandemic challenging those who have been on the hunt for a new home as they compete for a limited supply and as the rising interest rates will make the cost of borrowing for a mortgage go up, this poses more challenges for prospective home buyers.
In the last couple of months, we’ve seen how unforgiving the market has been for many prospective Greenville home buyers. Houses were flying as soon as they come on the market. Aspiring homeowners have been fighting bidding wars and surging Greenville home prices fueled by strong demand and a lack of supply have made new inventory increase by the thousands.
Now, home buyers must overcome a new challenge as the interest rates continue to soar. After Fed’s announcement, interest rates on a 30-year mortgage have spiked above 5 percent for the first time in over a decade adding burden to home buyers who were already having challenges with rising home prices.
The increase in rates means someone borrowing $400,000 to buy a home today is paying $238 more every month than when rates were 4 percent. For each 1% rate increase, homeowners’ payment increases by $238, or roughly 13 percent. A 1 percent increase in mortgage interest decreases home buyers’ purchasing power by $45,000. First-time homebuyers already overwhelmed by sky-high prices are trying to lock in a purchase now before interest rates go up even more.
How rising interest rates affect home buyers
- Home buyers may have to look for a cheaper home. Homebuyers on tight budgets have lost their buying power. As interest rates rise, homebuyers may have to look for a cheaper home or just leave the housing market because they cannot afford to buy anymore.
- Home buyers wind up qualifying for a lower loan amount. The amount of a preapproval is based on both the down payment and the monthly payment a buyer can afford based on the debt-to-income ratio (DTI). Because the monthly payment is higher, home buyers will have a lower loan amount they can handle.
- Increase in mortgage payments. Because the interest rate is higher, home buyers will be paying more on mortgage payments. This would mean spending a bigger chunk of their monthly budget on their house.