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“Short of a war or stock market crash…”

This month, Arch Mortgage Insurance released their spring Housing and Mortgage Market Review. The report explained that an increase in mortgage rates and/or home prices would impact monthly payments this way:

  • A 5% increase in home prices increases payments by roughly 5%
  • A 1% rise in interest rates increases payments by roughly 13% or 14%

That begs the question…

What if both rates and prices increase as predicted?

The report revealed:

“If interest rates and home prices rise by year-end in the ballpark of what most analysts are forecasting, monthly mortgage payments on a new home purchase could increase another 10–15%. That would make 2018 one of the worst full-year deteriorations in affordability for the past 25 years.”

The percent increase in mortgage payments would negatively impact affordability. But, how would affordability then compare to historic norms?

Per the report:

“For the U.S. overall, even if affordability were to deteriorate as forecasted, affordability would still be reasonable by historic norms. That is because the percentage of pre-tax income needed to buy a typical home in 2019 would still be similar to the historical average during 1987–2004. Thus, nationally at least, even with higher rates and home prices, affordability will just revert to historical norms.”

What about home prices?

A decrease in affordability will cause some concern about home values. Won’t an increase in mortgage payments negatively impact the housing market? The report addressed this question:

“Even recent interest rate increases and higher taxes on some upper-income earners didn’t slow the market, as many had feared…Short of a war or stock market crash, housing markets could continue to surprise on the upside over the next few years.”

To this point, Arch Mortgage Insurance also revealed their Risk Index which estimates the probability of home prices being lower in two years. The index is based on factors such as regional unemployment rates, affordability, net migration, housing starts and the percentage of delinquent mortgages.

Below is a map depicting their projections (the darker the blue, the lower the probability of a price decrease):

“Short of a war or stock market crash…” | MyKCM

Bottom Line

If interest rates and prices continue to rise as projected, the monthly mortgage payment on a home purchased a year from now will be dramatically more expensive than it would be today.

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About Area

Blairsville, Georgia is a small mountain town in the Appalachian Mountains. For many people who live in larger cities, these mountains provide a simple escape from life’s daily stresses. Stunning scenery among Northeast Georgia’s gentle peaks and beautiful creeks and rivers makes this region a natural paradise. Encompassing nearly two-thirds of Blairsville, the Chattahoochee National Forest has winding trails that lead visitors through scenic mountains, rushing rivers, and cascading waterfalls. This is where you can step back in time with nature and walk where the Cherokee Indians once lived. There are many different and beautiful settings for cabins in Blairsville. Creeks and rivers flow all through the area, and the banks make for a peaceful and fun home site, where you can sit and listen to the water flowing over rocks, or even try your luck at catching a native brook trout in your own back yard. If you prefer a mountain view, they are abundant here, and the Chattahoochee National Forest ensures that the majority of the neighboring land will remain untouched and serene, so your mountain view will remain a mountain view, not an adjacent home view. If your plan is to move to Blairsville permanently, the school system is among the top ranked in the state, with a graduation rate much higher than average, and the hospital is new and state of the art. If you’re looking for a vacation or investment property, the rental cabin business is booming in Blairsville. No matter your wishes, the experienced agents at Century 21 Scenic Realty will be able to guide you in your journey. Our goal is to ensure your complete satisfaction, and we are confident in our ability to do just that.

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