What will buyers pay?

Happy Monday!

Last week we looked at rising interest rates and the effects they have on what buyers can afford for a home. The chart below looks at this again, but with differing home prices ranging from $100,000 to $500,000. You can see what happens to a person’s monthly payment at different price points as the interest rate rises.

August2013-24

Even though rising interest rates do impact how much home a person can buy, and certainly one would pay more right now in interest than they did in January of this year, let’s take a look back and see what people paid over the past thirty years:

August2013-25

As you can see, based on a $250,000 mortgage, someone buying a home back in 1983 paid quite a bit more per month than now (over $1,500 more a month!). So while yes, current interest rates are higher than they were earlier this year, one can take comfort in knowing that they are a lot lower than they were over the last 30 years.

Last week, we discussed reasons why now might be a good time to buy a home versus waiting (rising interest rates, rising house prices). The same holds true for sellers. Here’s something interesting to note about buyers and what they are willing to pay for a home:

August2013-26

This chart shows the number of buyers out of one hundred who are willing to bid over the asking price. Twenty-five percent of the buyers (25 out of 100) are willing to pay 1% to 5% over the asking price to get a house. Nine out of a hundred (9%) are willing to pay between 6% and 10% over the asking price. And four out of a hundred (4%) are willing to pay 10% more than the asking price. So for a home selling for $300,000, 4% of buyers are willing to put an offer in of more than $330,000 to get the house! Very interesting stuff. This shows that there are buyers out there who are aggressive in their offers. Perhaps the days of low-balling the seller are dwindling.

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