Keeping Perspective on Rising Interest Rates
In 1986 I started my real estate career, and in 1988 I purchased my first home and locked in at a 10.5% interest rate! I was thrilled. All my colleagues told me how fortunate I was to get such a great rate.
Today, rates have gone from 4% to 5% over the past 12 months and buyers are beginning to have a tough time with this drastic change. To best put this into perspective, in November of 2017 a 30- year, 4% fixed rate mortgage payment for a $400,000 loan would have been $1,910. Today, one year later, that same payment at today’s rate of 5% would be $2,147. The difference of $237 is a 12.44% increase on the identical size mortgage.
Combine that with Portland’s year-over-year appreciation of 5% (according to the Case Schiller Index – September to September) we can all see that it won’t take long to slow down both sales and appreciation if the interest rates continue to climb.
However, if you were to flash back to 1988 and sign on for my 10.5% interest rate, your payment today on that same $400,000 mortgage would be $3,659. So, for all of those who may be concerned with slowly increasing interest rates, keep this all in perspective. At today’s exciting rate of 5%, you are ahead by $1,512 per month in comparison to what you could have borrowed money at in 1988 along with me.
As a seller, be prepared for slower appreciation. As a buyer, recognize that while today’s 5% is not last year’s 4%, it is still fantastic overall, and will likely slow down appreciation! Thankfully, it’s no longer the 80’s – no more big hair metal bands, John Hughes movies, and double-digit interest rates!