There are a lot of factors that determine the selling potential of a home, but the most impactful ones are overall interest rates, economic conditions, and the economy in association with the real estate market. Whether you are a potential home buyer or a current home owner planning to sell your home, you must be well aware of what factors have the biggest impact on the entire process. This short article will give a brief explanation of the top four factors that affect the overall process of selling a home.
1. Fluctuating mortgage interest rates
Majority of home buyers who are interested in purchasing a home in this day and age opt for the fixed-rate type of mortgage that lasts for 30 years. For most home owners, one of the biggest investments in their lives is their house. That being said, as a home owner, you have to understand what impact the decrease or increase of interest rates has on your monthly expenses. Moreover, mortgage rates also have a direct correlation with interest rates making it all the more important on your part to have a better understanding of these fluctuating mortgage interest rates.
Generally, the rule of thumb for mortgage interest rates is that for every 1% increase in your mortgage interest rate, you get an increase of $60 per month per $100,000 of your loan in terms of costs. Basically, if your mortgage has a value of $500,000, if its interest rates will go up by 1%, your monthly payment will increase by $300 more or less.
Despite the fact that in the past five years, mortgage interest rates have gone down and up until are still relatively low, they still increase at nearly 1%. For instance, if interest rates will go up from 3.5% to 4.5%, the above example can be expected. However, if the federal reserve decides to raise the interest rates and from 3.5% the rates will go up by 5.5%, this would be a very impactful increase on the part of most home owners.
2. Mortgage eligibility
For most lenders, they determine the eligibility of a person for a particular mortgage by looking into the relationship between the person’s monthly income and his or her monthly expenditures. Thus, if mortgage rates increase, some of the potential home buyers may not be eligible for buying a home that they once were qualified.
3. Housing market strength
If you look at the current real estate market, you will see that most of the houses being sold have increased selling prices. This is a simple scenario of the supply and demand chain as well as the existence of the sellers market making the current industry have more potential home buyers versus more available houses for sale. When mortgage interest rates will affect negatively the number of potential home buyers, the end result will be decreased demand for house and perhaps leading to home prices going down.
4. New construction/buildings
Once again, when interest rates increase, costs associated in making construction loans increase. This could result in one of two things, that is, home building becoming more expensive and challenging or reduced home building plans. This might imply builders to take more risks, accept lower profit margins, or not accept any new projects for the time being.