Austin TX Real Estate - Hill Country Austin Lakeway Homes for Sale: Rates Have Gone Up, How Much Buying Power Did You Lose?

Rates Have Gone Up, How Much Buying Power Did You Lose?

Rates have moved above 5% again... how much buying power did you just lose?
Buying power?  What do you mean?

Your Buying Power is about how much you can afford and at what price.  The best buying power is when you can buy as much as you want for as little as you can.

austin tx buying powerHuh?

Let's put it to numbers...

At a 4.5% 30 year fixed mortgage with 5% down, you could buy a house at $250,000 and pay a mere $1203.38 a month (not including taxes and insurance).

At a 5% 30 year fixed mortgage with 5% down, you could buy that same house for $1274.95 a month and a 5.5% rate at $1348.50 a month.

But Donna, I can only afford the $1203.38 a month.  That's what I set my budget at a year ago when I started looking...

No problem...  If you get a 5% rate and buy a house at $236,000 you can have a monthly payment of $1203.55.  If you continue to wait and get a rate of 5.5%, you can buy a house at $223,000 and have a payment of $1202.86.

Problem solved!!

But Donna, I don't like any of the houses in the lower price range which is why I've been looking in the higher price range!!

And?  What do you want me to do about it?  I've shown you house after house... perfect house after perfect house... you continued to "wait and see" and drive the parking lot... You've lost your buying power and there's nothing I can do about it.

What are some other options?  Put more money down. If you got a 5% rate, and put 10% down on a $250k house, you're payments would be $1207.85.  Right where you want to be.

money down the drainBut Donna, I don't have 10% to put down...

You see how this can go in a circle?  The buyer will continue to wait to see if rates come back down, and when rates hit 6%, their buying power is only $211,000 for the same payment around $1200.  They lost almost $40,000 in buying power.

When you deal with higher price ranges, you deal with higher consequences. Here's an example staying below jumbo loan amounts of $417k so interest rates can compare apples to apples.
If you're looking at $439,000k at 4.5%, you're then looking at $414,000 with 5%, $392,000 with 5.5%, and $371,000 with 6%.  Just because you waited to see, and rates jumped up, your buying power decreased and decreased pushing down into a price range where you don't like what you can get.  You lost $68,000 worth of buying power to keep the same payments!

Are rates going to hit 4.5% again?  Who knows... probably not.  Will rates hit 6% again?  Yes. When?  Who knows, but probably sooner rather than too much later. Just over one year ago, in November of 2008, rates were at 6.75%.  Why do buyers think rates won't hit 7% again like in 2002?

If you don't want to lose your buying power throwing money down the drain, you need to make some decisions!

**Are You Packed Yet?**

donna harris Realtor Austin TX blog

Donna Harris, REALTOR®
RE/MAX Austin Skyline

Austin TX Real Estate and the surrounding areas of Lakeway, Bee Cave, West Lake Hills, Cedar Park, Round Rock, Spicewood, Circle-C, Steiner Ranch, and everywhere in between... Hill Country Austin TX Real Estate and beyond. Whether you're buying or selling an Austin home, I'll be with you every step of the way. 

For real time Austin TX listings, click here.

** #1 Agent in my Office for all of 2008 **

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* Rates Have Gone Up, How Much Buying Power Did You Lose? * was first published on

Comment balloon 10 commentsDonna Harris • December 23 2009 03:28PM



Your points are right on target.

Good luck and success.

Lou Ludwig

Posted by Lou Ludwig, Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC (Ludwig & Associates) about 10 years ago

Donna - This is an excellent breakdown of "buying power" and unfortunately it's something a lot of buyer's don't understand. 

Posted by Michelle Gibson, REALTOR (Hansen Real Estate Group Inc. ) about 10 years ago
Donna, interest rates going up equal less buying power. Good point.
Posted by Gary Woltal, Assoc. Broker Realtor SFR Dallas Ft. Worth (Keller Williams Realty) about 10 years ago

And I fear it's going to get worse. BUY NOW! Has more meaning now than ever. Inventory is shrinking in most markets, rates are going up. There will be many with the "would-a, should-a, didn't" issue in a few months.

Posted by Ruth Vogt, 719-592-0855 Apply 24/7 (Fairway Independent Mortgage, LLS. Equal Housing Opportunity. Regulated by the Division of Real Estate.) about 10 years ago

Lou, I try...

Michelle, I know, and it's hard to explain when it's just words, but seeing the numbers hit home.

Gary, Yep!

Ruth, I know!

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - about 10 years ago

I can't wait for lender's advertising to catch up with interest rates!
Merry Christmas from your friend in Washington State,

Posted by Paul S. Henderson, REALTOR®, CRS, South Puget Sound Washington Agent/Broker! (Fathom Realty Washington) about 10 years ago

Hi Donna... it's like they say, "If you snooze, you lose."  Anyone who is not taking advantage of this market and interest rates now has nobody to blame but themselves if they end up paying more or settling for a less expensive home to hit a payment amount!

Posted by Steve Shatsky about 10 years ago

so true.  Unfortunately people are more keen to take the advice of their hairstylist than their real estate professional when it comes to real estate sometimes.  Why?  I have no clue. 

Posted by John Jones (Briggs Freeman Sotheby's International Realty) about 10 years ago

Donna, GREAT use of math!  I love your examples and plan to use the same explanation for my on-the-fence buyers.  Thank you, and all the best to you in 2010.

Posted by Melissa Brown, Realtor - South Charlotte NC Homes for Sale (Helen Adams Realty) about 10 years ago

LOL - have to chuckle - have had many of these conversations myself !

Bottom line, you can slice it a number of different ways, you just cant eat the entitre cake :o)

Cheers Donna ! ...hope you guys had a great Christmas !


Posted by Sheldon Neal, That British Agent Bergen County NJ (Bergen County, NJ - RE/MAX Real Estate Limited) about 10 years ago