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For Sale by Owner Articles • - Home Selling Tips

The Interest Rate Effect

By Robert Irwin
Do interest rates affect the ability of "bv owner" sellers to get a sale?
It's a question that many "by owner" sellers are wondering these days as they read of interest rates steadily climbing upward. Does this mean it will be harder to find buyers?
Technically, it does. Every time the interest rate on mortgages rises, so do monthly payments and that makes it harder for buyers to qualify. It has been estimated that just a quarter percentage point jump can eliminate as many as 30,000 buyers from the pool of people looking to purchase homes.
Not to worry, however, at least in the short term. Although the Federal Reserve has been raising interest rates, those are on short term borrowing. If you want to borrow money over the next year, yes it will cost you more money.
However, if you're looking to borrow money over the next 30 years, as in a home mortgage, it may not cost you more interest. Indeed, even as short term interest rates have been rising, as of this writing, longer term rates have actually been falling. At the end of last year, in fact, rates were once again approaching 40 year lows.
I'm sure that many readers are wondering how this can be? How can short term rates rise while long term rates fall? The answer is, anticipation. Most lenders anticipate that the Federal Reserve will continue to hold interest rates up to prevent inflation from setting in during the current economic recovery. Certainly the Fed has proved it's willingness to do this by raising rates a half dozen times over the last year.
On the other hand, the economy hasn't been perking along all that well. Indeed, this has been one of the most anemic recoveries in history, especially in the area of job growth. Further, the current recovery has been going on for several years and is approaching it's end, at least as recoveries go. That means that within the next few years we are likely to see a downturn in the economy. And anticipating that downturn is what causes lenders to offer lower long term mortgage rates.
Thus, if you're worried about interest rates keeping you from selling your home in the near future, you should probably relax.
On the other hand, if you don't anticipate selling for a few years, then interest rates may be the least of your worries. You may find yourself facing a new recession, one that slows home sales and force prices down. (It's worth noting that during the last major recession in the 1990s, home prices in some parts of the country dipped as much as 25 to 30 percent.)
All of which is to say that it may make good sense to act while the fire is hot. Get your home up for sale in the seller's market that still exists in most parts of the country, instead of waiting for that inevitable buyer's market to return.
Many people, including buyers, are unaware of what mortgage interest rates actually are at any given time. Therefore, it's a good idea for "by owner" sellers to offer a "Financing Advisory" as a handout. This simply lists a variety of payments for their home at different mortgage amounts, interest rates and terms. That way buyers can see at a glance what it's going to cost them monthly to buy. Be sure to update the advisory on a regular basis.
Robert Irwin is the most prolific real estate writer in America having produced over 100 published books in the field. His TIPS & TRAPS McGraw-Hill series has sold well over a million copies and his FOR SALE BY OWNER KIT and FIND IT, BUY IT, FIX IT and other books have been strong sellers for Dearborn.
In addition Irwin writes a regular real estate column for The Wall Street Journal online and is introducing a new weekly column
Irwin has sold his own property "by owner" and during over 30 years in the business has been a broker and consultant to lenders, agents, buyers and sellers.
He can be reached through his website

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