Historically low interest rates have helped full home sales, many first time home buyers took advantage of the ultimate in timing - lowest interest rates and low house prices. Times are changing quickly however and affordability is quickly becoming an issue, causing first time home buyers to reevaluate the American dream. The housing market is dependent on first time home buyers because they purchase the homes form others who wish to "move up" and buy something bigger, simply put - It's Cause and Effect
With prices increase becoming the trend these first time buyers are slowly being chased out of certain markets, and it's likely going to get worse. There has already been "bubble talk", however that isn't likely this time around because the growth has been steady and lenders have remained strict on income verification and debt ratios. It's easy to understand the effects that increased prices create within the real estate market, however the biggest change may come from interest rates.
Low interest rates have been the "norm" for years, and while 4% or lower rates are great, they just won't last forever. The reality is that we've been spoiled, and that's about to change. With the stronger economy, a housing market that's gaining strength everyday and economic markets that are demanding change, there's only one way for interest rates to go ... up. Rates are likely to rise at a gradual pace, small and insignificant at first and quite larger in time. As these rates rise, affordability becomes an issue because for every 1/2% increase in the interest rate the buyers payment increase 5%. Imagine an interest rate at 6% on a 30 year loan for $300,000 : that would be approximately $2,170 per month (PITI), compared to todays rate of 4% that is an increase of $367 per month .... a 20% increase in the buyers payment on the same loan amount.
This "new norm" is going to hurt, and regardless of the pain, it's likely going to happen. Good interest rates of the past have been between 6-7% and it's common sense that these will be the good rates of our not too distant future. This will have an equal effect across the housing market because all buyers will be subject to the new rates. What I mean by this is that home owners who decide to sell and buy something else will also be letting go of their low interest rates; essentially re-borrowing the same amount of money but paying 2-3% more for it and increasing their payments as well.
Things are changing, those that see the change coming and plan accordingly will be at a huge advantage. Those that don't see the writing on the wall are going to be making some concessions .... or moving elsewhere.
That's my 2 cents ... you can keep the change!