• Client Info
  • Realtor Info
  • Seller Login
  • Contact

Boulder Property Network

Boulder Property Network

Boulder County Real Estate

  • Home
  • Search Real Estate Listings
  • Duane’s Timely Topics
  • Results Count
    • Why We Work by Referral
    • Testimonials
  • Our Team
    • Timmy Duggan
    • Barb Passalacqua
    • Kelsey Jensen
    • Duane Duggan
  • Real Estate Blog
You are here: Home / Boulder Real Estate Blog / Rising interest rates decrease purchasing power

Rising interest rates decrease purchasing power

August 22, 2022 by The Boulder Property Network

In general, as interest rates rise, the homebuyer loses about 3% of purchasing power for every .25% in interest rate increase.

 

Today’s market is tough on first time buyers. The inventory of homes and condos purchased by first-time buyers continues to be low, and along with inflation, home prices are being pushed upward in most markets. This is reflected in data from the National Association of REALTORS® 2022 Survey of Homebuyers and Sellers showing that 34% of homebuyers were first-time buyers. That percentage is likely to drop in the second half of 2022 and into 2023 due to rising interest rates and continued price appreciation.

During inflationary times, such as what we’re experiencing now, there is pressure in the economy for interest rates to rise to curb inflation. In general, as interest rates rise, the homebuyer loses about 3% of purchasing power for every .25% in interest rate increase. Buyers are then forced to choose a smaller, less expensive home, or wait until they get a raise or save more for a down payment. It is very tough to out-save an appreciating market or get a raise in time, so most will either buy the smaller place or step out of the market.

As an example, on a $400,000 loan at 3.86%, the principal and interest payment are $1,877 and increase to $2,094 at 4.78%. At 6% the payment increases to $2,398. Monthly income requirements increase from approximately $4,000 a month at 3.86% to approximately $5,100 a month at 6%.The exact income required depends on the overall monthly debt.

In addition to interest rates increasing, first-time buyers face yet another issue. As prices have increased, the conforming loan limits have increased, but not enough to keep pace with Boulder’s home price appreciation. In Boulder County in 2022, the FNMA loan limit is $747,500. 3% down loans are available on homes that are less than the $747,500 mark. According to realtor.com the median home price in Boulder is $1.1 million. This leads to a large gap, creating a down payment requirement that exceeds the ability of most first-time buyers.

Now that interest rates are rising, will home prices decline to balance out the purchasing power? Looking at historical evidence, it shows that sharply rising mortgage rates tend to slow home price appreciation and affect market activity. However, nominal price appreciation remains positive. During previous times when interest rates increased, we never had such a housing shortage. Therefore, even though housing affordability has been reduced, home prices are unlikely to decline. As a result, affordability challenges are likely to continue.

When interest rates are on an upward trend, buyers start to get nervous and this creates a rush in the marketplace. Even with modest increases, interest rates continue to be very reasonable, relatively speaking. I remember in the 1980s when mortgage rates rose to 16%! Hopefully, most buyers will still be able to make their home buying decision because they like the home, not because they are pressured by interest rates.

By Duane Duggan. Duane has been a Realtor for RE/MAX of Boulder since 1982. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail DuaneDuggan@boulderco.com, call 303.441.5611 or visit BoulderPropertyNetwork.com.

Filed Under: Boulder Real Estate Blog, Duane's Timely Topics, Real Estate Investment Information Tagged With: #bouldercountyhousingmarket, #bouldercountyrealestate, #boulderrealestate, #collegehousing, #coloradorealestate, #firsttimehomebuyer, #homebuyer, #homeownership, #inflation, #interestrates, #mortgage, #mortgagerates, #purchasingpower, #realestateinvestments, #seniorhousing

Contact Us

  • This field is for validation purposes and should be left unchanged.

Blog Archives

Featured Listings

$199,700For Sale!1199 Brainard Lake Ward, CO 80481View Listing
Lot 12: $173,000 / Lot 13: $174,700For Sale!0 5th St (Lot 12 & 13)Nederland, CO 80466View Listing

See all of our listings.

Recently Sold Properties

389,700Sold3365 Chisholm Trl B101Boulder, CO 80301View Listing
$2,997,000Sold3080 Galena WayBoulder, CO 80305View Listing
$649,700 Sold271 Jefferson AveLouisville, CO 80027View Listing
$628,700Sold170 Golden Gate Canyon RdBlack Hawk, CO 80422View Listing
$655,000Sold2323 Buttercup CtSuperior, CO 80027View Listing
$595,000Sold1513 Sepia AveLongmont, CO 80501View Listing
$873,000Sold5455 Lee Hill DrBoulder, CO 80302View Listing
$451,000Sold311 Windance RdEstes Park, CO 80517View Listing
$235,000 / 280,000Sold765 Pine St & 797 Pine StNederland, CO 80466View Listing
$770,000Sold705 Club Pl.Louisville, CO 80027View Listing

Tweets by BoulderPropNet

Download our App

Boulder Property Network AppGet the Boulder Property Network mobile app to start your search for a new home right from your phone or other mobile device!

Download it here >>

Neighborhood News Report

How's the market? We can provide you with accurate information on the real estate market activity (Listings , Sales & more) in the area you are most interested in!

Get your Neighborhood News here >

Free Home Valuation

Free Market ReportBoulder Property Network can provide you with the information that you need to make a plan for your real estate purchase or sale.

Get your home valuation >>

Looking to Sell?

Looking to Buy?

Information for Investors

Recommended Reading for REALTORS®

REALTOR® for Life

by Duane Duggan

realtor-for-lifeWhat does it take to be a REALTOR® for life? This book provides first hand knowledge from one of the most distinguished and active careers in real estate. Duane Discusses his newly published book here.

Purchase on Amazon

© 2023 Boulder Property Network • RE/MAX of Boulder Inc.
2425 Canyon Blvd. #110, Boulder, CO 80302
800-825-7000 x611

Boulder Property Network on FacebookBoulder Property Network on TwitterDuane Duggan on LinkedinOur listings on YouTubeDownload our Listings App
Site Map