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The Maui Real Estate Blog

Rising Rates: Bad News for Potential Home Buyers

On the Rise

According to National Association of Realtors Chief Economist, Lawrence Yun, “Mortgage rates are on the rise.” They will probably be near 5 percent by this time next year, compared to the 3.5 percent average of the past 12 months. The rates will continue to rise well into 2016 and 2017. Due to rising interest rates, many families who would qualify with 3.5 percent interest rate cannot qualify with a 5 percent rate. Look at it this way, the numerical difference between people who can afford a mortgage at 5 percent rather than at 3.5 percent is a staggering 2.9 million.

intrest rate explanation

Chart explaining the above scenario

Changing of the Guard

Since the market’s crash, its had a spiraling effect on potential home buyers. As a realtor there is nothing more disappointing than having clients denied a loan. There are many good potential buyers who have been denied a mortgage that in past normal years would have easily qualified. The Federal Reserve has also often commented about the excessively tight underwriting standards in today’s mortgage market. However, US banks have been reporting less and less missed payments due to the stricter protocol seen in the past three to four years. Also, coupled with stricter policies is the rising prices of homes, which gives buyers an extra edge in a tough market. Since mortgages have performed so well over recent years, lenders are starting to revert back to, well for lack of a better word, looser policies. Therefore, bringing back the buyers who could not receive a loan in years past.

chart2

Chart explaining credit scores needed to obtain loan

Yun also believes, “There are other factors that can also help alleviate the rising interest rate conditions. The economy is adding jobs. A total of 2 million net new jobs were added in the past 12 months and another 2 million new ones are likely over the next 12 months. More jobs always lead to more home sales as long as rates do not spike.”

For a complete read on rising interest rates, click here for the full article.

Aloha,

Dano Sayles R(B)

808-870-4899

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