We have seen the benchmark 30-year fixed rate mortgage increase by about 50 basis points since the election, from roughly 3.50% to roughly 4.0%.

No I don’t have a crystal ball. Don’t ask me to predict what’s next. I thought it might help to lay out what that means in dollars and cents, and what people might want to start thinking about as we head to the new year.

Holding everything else constant, increasing the interest rate from 3.5% to 4% will reduce the amount you can borrow by about six percent. In other words, if you could qualify for a payment on a $250,000 mortgage at 3.5%, you’re looking at $235,000 at 4%.

Which of course means….

  • sellers will have to take less money, and/or
  • buyers will have to make bigger down payments, and/or
  • buyers will have to consider different types of properties (different neighborhoods, different characteristics)

Points one and two are painful perhaps, but easier relatively for the Realtor I guess. The transaction still happens (maybe), the parties may not be as happy.

However, Point Three has a lot of upside potential for everybody, in my opinion. Find the deals, find the diamonds in the rough, move on from the overvalued areas, the overvalued regions. Can it happen? Are there already people out there preparing, looking, analyzing? I wonder…

At 4.5%, that $250,000 mortgage of October 1 that became today’s $235,000 note… will turn into $221,562.

Will you be out of business, or will you be ready?

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