Every week it seems, there’s a headline about rising interest rates or new pressures on prospective home buyers. The housing market is changing, and not just on Long Island. Around the country, buyers are facing affordability challenges even as they hurry to lock in a loan before interest rates rise again.
The pandemic ushered in a booming housing market as people decided to make big life changes and take advantage of historically low rates. Overwhelming buyer demand pushed home prices to new heights, a trend that continued for more than two years. Now, the market is correcting and coming back down to Earth as the Fed continues to try to rein in inflation.
Last year at this time, interest rates for a 30-year fixed rate loan were around 2.5-3%. As of writing, Bankrate reports the average interest rate for the same loan is just over 7%! That’s a big change in just twelve months and it’s having a real impact on our local market.
How Rising Interest Rates Impact Buyer Affordability
Interest rates have a direct impact on what prospective home buyers can afford to borrow. Simply put, the higher the interest rate, the higher the monthly payment a buyer must make on the same priced house.
Here’s a basic example* for a home with a purchase price of $700,000.
-Assuming you put down 20%, your loan amount would be roughly $560,000. With an interest rate of 3.5%, your monthly mortgage payment would be about $2,515, not including taxes and fees.
-However, if you put down 20% on that same house to purchase it at the same price of $700,000, but the interest rate on your loan is now 7%, your monthly mortgage payment would now be about $3,726 per month!
That means a buyer who could have afforded to buy a home at $700,000 a year ago is likely looking in a new, lower price range to ensure they can still comfortably make their mortgage payments each month.
*Numbers used are given as example only. For a true picture of what you can afford in today’s market, please reach out to us to get connected to one our preferred qualified lenders who can accurately help you assess your situation.
What’s Next for Long Island Home Buyers
If you’re looking to buy a home on Long Island in the next six months, does this mean you should hold off and wait for home prices and interest rates to come down?
Absolutely not.
If you are qualified and ready to purchase a home, now is the time to make your move. Despite pressure from interest rates, home prices are not expected to significantly decline in the next year. In fact, most experts are predicting that prices will appreciate at a rate of about 2.5%. This is a notably slower rate of growth than we’ve experienced over the last two years, but it is still growth.
Similarly, interest rates are not predicted to decline either. That means your best chance of securing a great rate for a home in today’s market is to buy now. If interest rates do decline in the future, you can always refinance at that time.
What’s Next for Long Island Home Sellers
Buyers are feeling the affordability squeeze, yet the Long Island market continues to hold steady. We’re not seeing the frenzy of the past few years, but buyers are still out looking and offering on homes.
Our biggest advice is to adjust your expectations. Multiple offers within hours and sky-high sales prices are likely over for now. With less competition from other buyers, people are taking their time and making offers they feel are reasonable given the affordability challenges. It’s a new market and that requires a new mindset. Be smart about who you work with to sell your home. Choose a team that has a proven record of success in any market. Pricing, marketing, and professionalism will be the key factors to a quick and smooth sale at a great price.
Whether you’re looking to buy, sell, or both, the Pesce & Lanzillotta Team is your resource for Long Island real estate. We have the skills and proven strategies to make your next move successful. Reach out to us today to take the next steps this fall.
The Pesce & Lanzillotta Team, at BHHS Laffey International Realty
Office: 516-888-9711
Email: info@pl-team.com
