I’m an expat living overseas, but I would like to move back to the US in the next 6-12 months. As someone sitting on the sidelines, wanting to buy a house within the next 12 months, this is a huge concern, especially given that purchasing a house is one of the factors behind the decision to relocate.
Interest rates are on the rise. The 3.5% 30 year mortgages will likely not be seen for quite some time.
Running some calculations on what may be a typical buyer:
At 3.5% interest, this buyer can get approved for $261k.
At 5.0% interest, this buyer can only get approved for $231k.
The average person, whose information I used in my calculation is already tapped out. Even though in the past 12 months or so, incomes have been modestly rising, this is not going to make up for the difference in the interest rate increase when it comes to mortgages. The buyer in my example above will simply be priced out of the market. At some point, this will impact demand, which will cause prices to either stagnate. This scenario would be typical for a suburb where people commute 30+ minutes each way to work.
Urban housing will not be impacted nearly as much, for several reasons:
- Urban homeowners typically have higher incomes. Those at the top end of the pay scale have actually seen fairly decent wage increases recently.
- Those living in the city center then to have multiple sources of income besides their primary jobs, such as investments. If the stock market were to crash, this could cause urban house prices to decline
- Location. Nobody wants a 30+ minute commute to work, and there simply isn’t going to be any additional urban space for SFH.