How interest rates affect our market and what you should tell your clients.
Interest rates have skyrocketed over the past few months. They went from around 3% to just over 5%, but what effect does that increase have in our industry?
In our business, we have something called the 1% rule, which states that for every 1% interest rates rise, it effectively reduces buyers’ purchasing power by 10%. The slide at 0:58 in the video shows this effect. A buyer approved for a $400,000 home at a 3.5% rate could only afford a $360,000 home at 4.5%, and at a 5.5% rate, they could only afford $320,000.
So now that rates have affected buyers’ affordability, what message should we be sending to them? First, educate them about the 1% rule and tell them that you understand how rates impact them. Second, give them a forecast of future rates if they’re waiting to buy. Some experts expect rates to climb above 6%, which would mean another 10% hit to your client’s buying power.
If your clients don’t buy right now, they risk being outpaced by the market. If you have any questions, feel free to call or email us. We’d love to help.