How Do Interest Rates Affect Your Buying Power?

By Frank Valente

Associate Broker at eXp realty of California. Active agent and broker since 2003 in the Sacramento Region. Retired from the Navy in 2002 after 24 years as a Commander. Former Surface Warfare Officer.

If you’ve been paying attention to the news, you know that interest rates are on the rise. How will this affect your buying power? Today I want to run through a few examples that demonstrate how purchasing power is affected by rising rates.

This is a pretty time-sensitive topic, but as of late April 2022, interest rates are hovering around 5.2%. Just six weeks ago, you could get a mortgage at 3% interest. What does this increase mean for you?

If you want to keep your payment at $3,000, the highest loan you could get at a 3% rate would be $600,000. However, at a 5.2% rate, you can only afford a $490,000 loan. That’s nearly a 20% decrease in your purchasing power.

“Rates are increasing, but they’re still historically low.”

This hurts buyers’ purchasing power, and it will affect every price point. If you’re a seller in Southern California, it’s still a great time to sell. However, if your neighbor sold their home with 20 offers in three days a few months ago, just know that you might sell with two or three offers in a week or so. It’s still a great time to sell; it just won’t be as crazy as it was before.

For buyers, this unfortunately means that homes are more expensive than they were six weeks ago. However, 5.2% is still a historically good interest rate. I recommend you lock in that rate now before they rise further.

If you have questions about today’s topic or anything else, please call or email me. I am always willing to help!