Higher mortgage rates affect Chicago home buyers directly, but they affect home sellers, too! Here’s why rising mortgage interest rates could mean higher home prices in Chicago.
First, let’s consider the home buyer’s point of view. When mortgage rates are higher, more of your housing budget has to go towards interest. For example, say you were pre-approved earlier this year for a $350,000 mortgage loan at 6.5%. The principal and interest payment would be projected at $2,212.00.
But if you’re still in the market today looking for a home, you could be faced with an 8% interest rate. On a $350,000 loan, your P&I payment would now be $2,568.00.
If you needed to keep your P&I payment around $2,200, while rates are near 8%, it would mean borrowing $50,000 less, and settling for a mortgage of $300,000. In other words, buying less house. Or, you could make up the difference with a substantial down payment.
Even when rates were lower, the main challenge for buyers has been finding a home in their price range, in their preferred locations. Chicago’s home inventory has been squeezed for years. And this is where the seller’s perspective comes in.
One reason home inventory has been low, is because many homeowners can’t give up the low rates they have on older mortgages. In order to sell, they need somewhere else to go! But buying another home at 7% or 8% interest sounds tough when your current mortgage is 5% or less. Some homeowners find it easier to stay put.
According to the Chicago Association of Realtors, about 70% of Chicago’s mortgaged homeowners hold a rate below 4%. When including homeowners with rates between 4% and 5%, that percentage rises to 75% to 80%.
As startling as that sounds, keep in mind that not every homeowner has an active mortgage. According to Axios data, about 36% of Chicago’s residential properties are mortgage-free. Some of these homes were purchased with cash during the Great Recession or shortly after, when distressed homes went for cheap. Other homeowners have paid off their mortgages over time. A number of these homes will hit the market eventually, no matter what rates are doing.
Rates aside, market conditions are improving for home buyers. Right now, Chicago is a “balanced” market, with a nearly equal number of buyers and sellers. This may slow the pace of home price increases, for now!
Home buyers, give yourself a market advantage with StartingPoint Realty! We often know about new listings “coming soon” and you can be among the first to know about them. We can also refer you to trusted mortgage lenders, home inspectors and other local pros!
StartingPoint Realty – serving Chicagoland since 2004!
StartingPoint Realty proudly serves home buyers and sellers throughout the entire Chicago area. We offer free, first-time home buyer seminars every month! We offer free home selling seminars too! Contact us for your free home buying or home selling consultation!
Ryan Gable Broker/CEO Starting Point Realty
Phone: 847.348.1154
Email: RyanGable@startingpointrealty.com
https://startingpointrealty.com/
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