I’ve had several buyers tell me they are concerned about our market and the potential declining value of homes. We have had some job losses and are seeing longer market times, however housing prices have only slightly dipped in Anchorage. Even if they are on a decline, this may be the best time to get into the market if you plan to live in your home for more than a few years. If you plan to live in your home for a long time the biggest thing for you to consider is the payment unless you are paying cash. I always remind my buyers that you live in the payment, not the price.
Your monthly payment is affected by two main factors: Price and the interest rate. Right now we are seeing interest rates around 4.25% at the time of writing (this varies depending on loan type, credit score, loan length, and downpayment). What most people don’t realize is that an increase in your interest rate of 1% decreases the amount you qualify to borrow by about 10%. The amount you qualify to borrow is based on the maximum monthly payment that the lender will allow you to pay based on your other expenses, debts and total income.
This means that if you were qualified to borrow $350,000 and the interest rate rises back to 5.5% or 6%, which is likely, then the amount of home you can qualify for at the same monthly payment drops by $40,000-60,000!
Although home prices may decline in the next few years before stabilizing, it is unlikely that they will decline by that much. Even during the recession we saw housing prices decrease by 5 to 7%. So, even though housing prices might decline it’s likely that a person buying now will be able to get more house for the same payment. See the information below for more details on the effect of interest rates on how much house you can buy.