Property Investment 101: When rates rise, buying falls. Financial logic, really.
If Bank Negara Malaysia (BNM) increase the interest rate, would you still be buying a property?
Well, the answer depends. If you found a neighbour selling their home which is right next to your parents’ home and you want to be close to them because it’s now time to take care of them (since they have taken care of us for a very long time), then you would buy even if BNM increases the rates by 1 percent. Before you ask, but how much is this 1 percent increase? What if I could not afford this increase then? The calculation is right at the end of this article. In the mean time, take a look at what fluctuation in rate would do to the property transactions in the largest economy in the world. As at 2023, it is definitely still the United States yeah.
Article in nst.com.my Mortgage buyer Freddie Mac reported Thursday that the average on the benchmark 30-year rate slid back to 6.60% from 6.73% last week. The average rate a year ago was 4.16%.
The average long-term rate hit 7.08% in the fall — a two-decade high — as the Federal Reserve continued to raise its key lending rate in a bid to cool the economy and quash persistent, four-decade high inflation.
The big rise in mortgage rates during the past year has roughed up the housing market, with sales of existing homes falling for 12 straight months to the slowest pace in more than a dozen years. January’s sales cratered by nearly 37% from a year earlier, the National Association of Realtors reported last month.
For all of 2022, NAR reported last month that existing U.S. home sales fell 17.8% from 2021, the weakest year for home sales since 2014 and the biggest annual decline since the housing crisis began in 2008.
Higher rates can add hundreds of a dollars a month in costs for homebuyers, on top of already high home prices. Please do read the full article here: Article in nst.com.my
What’s the increase in amount for a 1% increase in rate?
Here’s the calculation. We assume this property would be in a smaller city / town in Malaysia and not within Kuala Lumpur yeah. We assume the property is RM500,000 and all the below. 30-year loan period. Downpayment of 10% and an interest rate of 4.5% rising to 5.5%. The difference between the 1% increase in rate is RM274. 97 per month. Is this amount a lot? Actually, if I did not stretch my home loan to the limit, I think this amount is still acceptable and that I would still be able to afford it. Do take a look at below.
Happy understanding. Do not stretch to your limit please. There is always a potential for rates to rise.
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