If you've considered moving in order to upsize or downsize your home, this may be the time to do it. By waiting, you might be costing yourself a significant amount of money – even as San Diego home values continue to grow. The culprit here is steadily increasing interest rates.
Interest Rates are Headed Up
For the past year, up until this May, 30-year fixed rate mortgages had remained at around a 3.5% interest rate. Over the last two months, however, we have seen rates rise a full percentage point, to where they're now hovering at around 4.5%.
What does that mean in the real world? It means a noticeable rise in monthly payments.
A $300,000 loan financed through a 30-year fixed rate mortgage at 3.5% interest would have cost $1,347.13.
Today, that same $300,000 30-year fixed rate loan at 4.5% interest costs $1,520.06.
The result is an additional interest payment of $172.93 every month.
By themselves, those facts and figures may sound depressing, but not when you look at the bigger picture. Throughout most of the last decade, average annual interest rates bounced in-between 5.5% and 6.5%. At 6.5%, the monthly cost of the $300,000 loan would rise to $1,896.20.
According to Freddie Mac records, average annual interest rates were over 8% as recently as 2000. If we were to see 8% interest rates again, our example loan would then cost $2,201.29 – nearly $700 more per month than we're seeing today.
The good news is that given historical interest rates, today's 4.5% is still one of the lowest numbers many homebuyers have seen in their lifetimes. It is not too late to move into a more spacious home, or to downsize to a more convenient and manageable location. The longer you wait though, the bigger disadvantage you will be at.
There are two main problems you'll run into as time progresses and interest rates rise – that the San Diego real estate market is a slightly slower and that your money doesn't go quite as far.
Fewer Buyers in the Market
As interest rates rise, and mortgage costs increase, more and more potential buyers stray away from purchasing. While the San Diego real estate market is really hot right now, that could change in the not-too-distant future. As time passes and the interest rates rise, there will be fewer buyers when it comes to selling your current home. For some properties, a less-active marketplace can mean a significantly longer period of time spent trying to secure a purchaser.
The Value of Upsizing or Downsizing Your Home Will Shrink
Another problem that you need to take into consideration is that the longer you wait the more housing prices in San Diego will likely increase. The $300,000 loan that keeps increasing in cost as interest rates rise? A longer delay in purchasing your new property will mean that it also gives you less purchasing power as opposed to now, when prices are still quite low.
In all likelihood, it will be quite a while before we see interest rates reach 8% or higher. While the local San Diego real estate market has rebounded well in recent history, the Federal Reserve is not quite ready to let rates grow too quickly. In the meantime though, each passing day that sees a rise in interest rates and home values is causing you to be at a greater disadvantage in the market.