Higher rates have started to affect mortgage applications. The current rate for a 30 year fixed mortgage is 4.58%. In September, the rate was 3.87%. This jump in monthly payments may seem minimal, however, the difference in buying power is significant. For example, the monthly payment on a $400,000 mortgage at 3.78% is $1,859. At 4.58%, the same monthly payment (keep in mind the monthly payment is based on a "debt to income" ratio) is only enough to borrow $367,400. This means that the average price a homebuyer can afford has declined 8.25% with just a 80 basis point rise in mortgage rates!
What will happen when rates go up another 50 basis points? 75 basis points? Home values will be crushed. And this is without mentioning the increase in condo inventory due to new construction in Brooklyn.
This will directly trigger a price decline cycle similar to 2007-2009. Flippers that overpaid will be the first to feel the pain since they are buying based on comparative sales BEFORE interest rates went up. This is a yellow light for buyers looking to fix and flip.
About: Dimension Equities is a full service real estate finance firm with 10 years experience. We specialize in alternative loan products, including direct hard money loans, and non traditional mortgages.