According to many sources the Fed is due to increase interest rates. This information leads to two important questions.
Q: What will cause the fed to raise interest rates?
A: According to many sources, Americans filing new claims for unemployment benefits fell to a 15-year low a few weeks back and consumer spending rose in March These are both signs the economy has been regaining power after stumbling in the first quarter of 2015. Low unemployment rates often lead to higher interest rates. So it appears the Fed may have no choice but to tighten rates by the end of the year. This is great news for the American economy, but not so much for homebuyers.
Q: More importantly, how does an increase in interest rates affect your buying power?
A: An increase of 1% in interest rates decreases your buying power by about 11%. So if consumers can buy a $400,000 home at 4% they can buy $356,000 home if interest rates rise to 5%. This simply means you can buy less home for your money.
Also, during the summer more homes are on the market than any time of year. Of course this is an opportune time to buy. However, more importantly it may be a crucial time to get moving to your home purchase.