By KEVIN McDUFFIE & TIM SAVOY
If you are in the housing market, you may have noticed something that you may find frightening: interest rates are up. However, this rise in interest rates should not stop you from buying now. If you thought interest rates would stay at 3 percent forever (as they formerly were), you were most certainly mistaken and perhaps a tad naïve. Within the last four months, a rise in interest rates up 1.5 percent to 4.5 percent has shocked many potential homebuyers.
This gradual rise in interest rates has shocked some potential homebuyers so much that they are no longer in the market to buy. Let us be clear: Do not let this happen to you.
Here are some basic reasons why the current market is still the best time to purchase a property in D.C. First, interest rates at 4.5 percent are still historically very low. If you are a buyer looking and feel you should wait for them to go back down, think again. The forecast and climate at the Federal Reserve shows that interest rates will be going up even higher within the next year. Treasury Secretary Jack Lew recently stated at the Washington Economic Club, “A lot of head winds” are dying down, and banks are better capitalized and “the U.S. is seen as a very attractive country for investment.” All of these are indicators that interest rates will rise in the future.
Now, how about we go through an example. Let’s assume you are purchasing a $600,000 property with a 10 percent down payment. If you were lucky and got the lower interest rate back in early May 2013 of 3.5 percent, the “P&I” — or Principle and Interest Payment — on your new property would be $2,424 month. The current rate on the same loan with 4.625 percent interest with P&I is $2,776. That is only $350 a month more than our initial example.
If we assume within a year home values will increase 10 percent (note: we obviously we cannot predict this estimate for sure as in some zip codes in D.C. this appreciation is much higher, per MLS review), and rates increase 1.5 percent, that payment will be $3,609 a month. That is $833 more than what you would pay in this market. This is of course assuming the predictions pan out.
Historically, appreciation in Washington, D.C. cycles up on a five-to-six-year cycle, while the stagnate or depreciating markets are typically shorter as only being three to four years. Because we are just into the end of the first year of appreciation, history should tell us we have another four to five years to benefit from this appreciating market.
With the U.S. economy steadily gaining momentum, the Federal Reserve has to increase interest rates to curb inflation. With the Federal Reserve chair nominee still up in the air, the markets are poised to be volatile. In addition, many other factors and influences both domestic and foreign continue to put pressure, good and bad, on rates to increase.
And so now we have the moral to the example: Jump in and do not hesitate to buy NOW! History has shown and will prove you are making a wise choice.
If you would like more mortgage and interest rate advice, please contact Rob Clark at 703-518-2814. Coldwell Banker Residential Brokerage Dupont is located in the heart of Dupont Circle at 1606 17th St., N.W. at Q Street. If you are interested in buying or selling please reach out to us for the real scoop. You can contact us at 202-387-6180.