DETROIT (WXYZ) — If you’re on the hunt for a home, you may be experiencing sticker shock with the hike in interest rates adding hundreds to monthly payments compared to two years ago.
But experts say it’s not all bad for buyers. In fact, it could be beneficial.
After living on the East Coast for a few years, Mario Moore and his wife knew it was time to return home to Detroit and plant roots. But finding their forever home has been a challenge.
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“It’s just been hectic,” Moore said.
His house hunt is now entering month seven, and the delay is costly. Last week, the Federal Reserve announced its largest interest rate bump in more than two decades at 0.75%.
“That sounds terrible. That sounds grim,” Moore said.
Daniil Manaenkov, the head of forecasting at the University of Michigan, says if you bought a home for $300,000 today, your monthly payment would on average be around $2,000 compared to $1,500 six months ago. That $500 difference is pricing a lot of people out of purchasing.
“The run up in mortgage costs and decline in affordability has been very, very stark and happened very quickly,” Manaenkov said.
David Hall, the CEO and founder of Hall Financial, says it’s time to re-evaluate what you can afford.
“There is certainly going to be a little bit of sticker shock, especially if you got pre-approved a couple months ago, because now you have to buy a little less home or accept the payment is going to be a little bit more,” Hall said.
To put that into perspective, to reach the same monthly payment, a person will likely have to drop down their home price by $100,000. But for some buyers, there’s an upside.
Janet Graham, an experienced realtor and associate broker at Howard and Hanna, says the climbing costs will clear out some buyers, eliminating the need for a bidding war.
“This is a great time to buy a home,” Graham said. “A buyer now doesn’t have to be so stressed out that they have to compromise and grab the first thing in front of them.”
Graham says when interest rates were at record lows, the market was flooded and many people were waiving inspections, bidding tens of thousands over asking just to get a home. But that’s shifting.
“It’s a perfect time to do negotiations again, which was off the table for buyers for the past two years,” Graham said.
Moore say right now, he will take the good with the bad.
“I mean what else can you do?” he said.
