Countervailing Forces

Not to be confused with the Forces of Darkness or The Force–though the definition may not be as far off as you might think–to “Countervail” is, according to Mr. Webster, “to exert force against an opposing and often bad or harmful force or influence”.

The Countervailing Forces I’m referring to are the interest rates of homes for sale. Specifically, we want to look at the quite low interest rates currently in play and the opposing force of “just slightly increased interest rates, like something as slight as 1/2 a percent”.

I know what some of you are thinking. Aren’t opposing forces supposed to be opposites? Extreme opposites, especially? Not necessarily.

Let me show you why even a small percentage is enough to separate the good, from the bad and the ugly.

On one side of the ledger are those who argue that home prices are going up. It’s true. I mean, I see how prices seem to be going up. What I don’t see is where inventory is coming into the market. What about Shadow Inventory, you say? There is no Shadow Inventory.

And anything that is added to the inventory of homes for sale is on the edges of town, out where home builders are going in. The point here is that these new homes are not in the sub-burbs.

On the other side of the ledger are those who stress that we don’t know how long interest rates will stay as low as they are right now.

Those are the two groups of people on either side of the fence. This is where the countervailing forces of interest rates–the rates now vs. the slightly increased rates of the future–comes in.

When the interest rate goes up even one-half of one percent, you lose a noteworthy amount of your home’s buying power. If you decide to wait and sell your house later, when the interest rates go up, the risk is that buyers will not be able to get the rate they are getting today.

Here’s a practical example of what I’m talking about:

•  Take a $200,000 home
• Bought with 4.5% interest
• With principal and interestThat’s $962/month in mortgage.

• That same home
• At 5% interest Is $1020/month.

Look at those two numbers. Imagine you’re the one looking to buy that home. See how the difference is significant in it’s impact on a buyer’s ability to buy your home?

If you’re the seller and that happens it may be harder to sell your home.

So when you see interest rates separated by 1/2 % and think, “Big deal.  I’d rather sell my home for even a half % more.  I’ll wait to sell”, remember this example of the countervailing forces.

Don’t fall for the bad and the ugly.
Be good and be smart.