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Homebuying 101

What to Consider When Selling Your Home in a Rising Rate Environment

There are many economic variables to consider when selling your home when interest rates are rising. If that’s the only changing economic variable, you’re generally going to see a negative impact on both home sales and home prices. This means as interest rates rise, the buyer pool for your home is going to shrink.

In 2008, the Federal Reserve set rates at 0.25 percent because of the recession and the lack of buyer confidence or demand. Since then, buyer confidence and buyer demand have risen. In December 2015, rates climbed to 0.5 percent and continued to rise to where they are today at 1.5 percent. The Fed has noted rates will rise to 2 percent in 2018 and then 3 percent by 2020.

What Happens to the Ability to Sell Your Home With These Rises in Interest Rates?
If interest rates rise 1 percent and all other economic factors remain the same, purchasing power for homebuyers will decrease by just over 11 percent; therefore, every quarter-percent (0.25 percent) rise of interest rates reduces homebuyer purchasing power by 3 percent.

That means for a home purchase of $300,000, a 1 percent interest rate rise reduces buying power to just under $267,000. So, someone who potentially may have been able to purchase your home may no longer have the buying power to do so. This creates a smaller buyer pool and less demand for your home. It’s also likely to increase supply as fewer people are able to purchase homes.

If mortgage rates rise, it becomes more probable for indecisive buyers to rush into the market, and the short term will likely see a decent boost; however, it could add extra pressure if rates continue to rise without leveling out.

While interest rates play a role in the housing market, there are a variety of personal and economic factors to consider, as well.

What Other Economic Factors Play a Role?
Supply and demand play crucial roles in determining the movement of home prices. If supply goes up, home prices go down. If supply goes down, home prices will probably go up. If demand increases, home prices mostly likely will as well; however, if fewer people are looking to buy homes, then prices will most likely decrease. As a seller, these are important factors to consider when putting your home on the market.

The sale of new homes is another factor to consider alongside rising interest rates because supply and demand will always play a factor in the home-buying process. Supply increases when new homes are created. Assuming that interest rates don’t rise too rapidly, paying attention to new-home inventory levels will give you an indication of what to expect as a seller.

Monthly income, as it relates to monthly mortgage payments, is a more important variable to gauge than interest rates alone. Your debt-to-income ratio plays a larger factor in your ability to qualify for a mortgage than interest rates alone. When monthly income rises, your ability to absorb higher interest rates does, as well. This means that as long as people are making more money, they’ll also be able to pay off any increase in debts.

When the real estate market crashed in 2007-2008, monthly payments of principal and interest were nearing 25 percent of the U.S. median family monthly income. Even with a rise in interest rates, Americans are currently seeing the highest monthly median income in the last 35 years. Because of this, the percentage of monthly income going toward monthly payments is still well below levels that analysts consider dangerous.

Overall, we seem much more hesitant to take out mortgages than we have been in the past.

One of the largest surprises is the percentage of all-cash transactions for home purchases. Even with interest rates at historic lows, the percentage of all-cash transactions is higher than normal because we’re more cautious about taking on debt than we have been in recent decades.

High stock market valuations allow people to diversify their percentage of assets, cash out and reinvest in real estate to keep their portfolio balanced.

The number of distressed properties is a result of a strong job environment. This allows folks to pay their mortgages without defaulting, while also helping to keep prices up even with a rise in interest rates.

While interest rates play a large factor in selling your home for top dollar, they’re in no way the only deciding factor. All of the factors mentioned above should be taken into consideration before you rush into selling your home because of high interest rates.

Ryan Fitzgerald is the founder of Raleigh Realty, a local real estate firm in Raleigh, N.C., that specializes in helping people find great homes for sale online.

This appeared first on ZING! by Quicken Loans. For more information, please visit realestate.quickenloans.com/.

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4 Ways to Prepare for a Competitive Spring Home-Buying Season

(TNS)—With housing inventory far lower than demand and mortgage rates poised to rise, it’s going to be a competitive market for homebuyers this spring.

If you’re looking to buy a home this season, here’s how to prepare yourself to enter the fray. 

Get your financial house in order.
Unless you plan on paying for the house in cash, you’ll need to apply for a mortgage. No matter how streamlined the process is, you’ll still need to gather a significant amount of documentation to give an accurate financial picture to the lender.

Before you even begin house shopping, look at your credit report to make sure there are no errors that could affect your score. Also, pay off any delinquent bills and reduce any other debts you owe so that your debt-to-income ratio (DTI) is favorable. Use a calculator to figure out your DTI and see if you need to make changes. Your goal is to look as attractive to lenders as possible so that you are you approved and can get the best rate on a loan.

Make sure you’ll qualify for a mortgage.
In order to get a mortgage, lenders want to know you’ll be able to meet your monthly obligations no matter what. This means they’ll ask to see your entire financial situation including employment history, salary, savings, investments, debts and anything else that makes up your net worth. Use a prequalifying mortgage calculator to get an idea of what size loan is right for your needs.

Even if you think you’re a strong candidate, never assume you’ll automatically qualify with the first lender you contact. Lenders’ guidelines have become stricter since the housing crisis of 2008, and you could lose out on the house you want if you can’t close on a loan. “Sometimes one deficiency can be offset by another strength. For example, if you have a higher DTI ratio, saving up enough to put a bigger down payment can help,” says Bill Banfield, executive vice president of Capital Markets for Quicken Loans. 

Choose the right REALTOR®.
Unless you’re a seasoned pro, having a REALTOR® on your side can make a big difference.

“An experienced agent will know what could happen that might make a deal fall apart and how to keep that from happening,” says Dori Summer, a real estate agent with Keller Williams Realty in Coral Springs, Fla.

Making an offer on a house in a competitive market can require more than just a willingness to pay the price. If a seller has to choose between multiple buyers, they’re likely to choose the one that’s coming to them with the best overall package. A good agent will present your offer along with other information, including your ability to get a loan, how much you’re able to put down and anything else that might make you more appealing than someone else vying for the same property.

Be prepared to pay the price.
Home prices in close to two-thirds of the housing market are at an all-time high, according to a February 2018 report by the National Association of REALTORS®.

“Sellers in this current market get at least 95 percent of their asking price,” says Samona Rosenberg, a licensed real estate agent with Stein Posner Real Estate Services in Boca Raton, Fla.

If you see the house you want and you know it’s in your budget, it may not make sense to hold out to see if the price will drop.

“The best properties all have multiple offers,” says Erik Williams, a REALTOR® with Keller Williams Realty in Cambridge, Mass. “If it’s a desirable property, it’s desirable to buyers. The people that I see get places under agreement are the most prepared people and the most aggressive.”

©2018 Bankrate.com
Distributed by Tribune Content Agency, LLC

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Ask the Expert: What Can Sellers Do to Prepare for a Home Inspection?

Stark_BuddyToday’s Ask the Expert column features Buddy Stark, director of Operations for HomeTeam Inspection Service.

Q: What can sellers do to prepare for a home inspection?

A: Completing these quick and easy tasks before beginning the selling process will help reduce stress and save your clients valuable time during the home-selling process.

Clean the House
An important part of selling a home is keeping it clean in anticipation of a showing. Cleaning the home will convey that it’s been well cared for and that the house is less susceptible to any issues caused by neglect.

Check All Windows
Have your client take a quick inventory of the windows to make sure they’re in good working order. Replace windows that are cracked or broken before the inspection to save time during the selling process.

Finish the Honey-Do List
Some areas of the home, although not typically thought of as areas that would affect a home’s appeal, may be displayed as safety concerns on a home inspection report. Your client can help themselves by replacing burnt-out lightbulbs, testing smoke detectors, replacing air filters and unclogging drains. These little things are easy to forget in day-to-day life, but taking care of them is a relatively easy task that will help potential buyers focus on the important systems of the home.

Check All Outlets
A sampling of electrical outlets will be tested as part of the home inspection to make sure they’re in good working order. Encourage your clients to take note of which outlets are not functioning in the home and replace them. Or, they may want to consider hiring an electrician to make sure both outlets and the electrical box are updated and in proper working condition.

Clear Areas for Easy Access
Home inspectors will be looking at the major parts of the home, including the foundation, HVAC systems, electrical systems, plumbing and even the water heater. Making sure home inspectors can easily access these areas, including the basement and attic, will save time during the inspection process.

Consider a Pre-Listing Inspection
Hiring experienced and professional home inspectors can save a lot of headaches during the selling process. They will thoroughly go through the home and notify clients of any potential issues ahead of listing the property.

For more information, please visit www.hometeam.com.

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