Guide Me Home to North Jersey

Aside from location, number of bedrooms, and schools, the most important criteria for a buyer is usually the price of the house. Many say right up front in the search process, “I want to spend between X and Y dollars.” Usually, the buyer prefers the more expensive home as it has more features than they are looking for!

But in this market, it’s important to understand that rising interest rates can have a huge effect on the monthly expense of mortgage and taxes. Right now, conventional wisdom says that interest rates will go up after March 31st causing higher monthly payments and the tax credit expiration will end April 30th causing buying activity to slow down. This will result in more inventory on the market. Good old-fashioned supply and demand in play here! Both buyers and sellers must be acutely aware of the cost of the house vs. the price of the house in this time period.

Let’s look at the consequences of an interest rate increase. The general rule of thumb is that for every 1 percentage point interest rate increase, the mortgage costs approximately 10% more. That means the buyer must lower the top price he is able to pay, put more money down, or resign himself to a higher monthly payment (sellers must be willing to lower the price of the home quickly to remain a viable and competitive player in the market). Now let’s look at the consequences of increased inventory. Unless a house is priced sharply and correctly, it will not sell in a glutted marketplace. Buyers have an opportunity to make an educated lower offer, maintain the projected monthly payments they can afford, and buy the house they want (hopefully, sellers will react, with the help of their agent, to meet this problem head on and lower the price of the home).

Posted by:Mary Jane Benedetto