There’s just one problem. The bottom – at least the bottom for interest rates – appears to be gone. And it just so happens that interest rates are a very powerful determinant of how much home you can afford and what you’ll pay each month – even more powerful, in some instances, than price.

Conforming 30-year mortgage rates are already a half-point above their October lows, clocking in at 4.625% heading into the second week of December. This is consistent with the Mortgage Bankers Association’s (MBA) prediction that the average rate on the 30-year loan will increase to 4.7 percent in the first quarter of 2011, and could reach 5.1 percent by the end of next year. Meanwhile, a recent forecast by the University of Chicago Booth School of Business predicts that Chicago home prices will remain near their current levels, while the U.S. economy will enjoy stronger than expected growth in 2011.

In Illinois, the economy is fighting its way back. State unemployment has gone down for seven consecutive months, and a great start to holiday shopping indicates consumer confidence is on the rise. While the Fed has stated its intention to purchase an additional $600 billion in Treasury securities, the MBA says this move is priced into current rates.

It may be hard to believe, but in the long run it makes more financial sense to buy a home at a higher price with a lower interest rate than vice versa. So instead of trying to time the bottom for prices, get the best interest rate you can on a mortgage and home that’s right for you.

For more information on how interest rates affect purchasing power, please feel free to contact me. And please remember that I’m never too busy for your referrals.

Interest rates can impact your payments and purchasing power more than the price of a home.

Monthly principal & interest per $100,000 borrowed
4.25%	$492
5.25%	$552
Loan amount with $2,000 monthly principal & interest
4.25%	$406,000
5.25%	$362,120

Courtesy of Guaranteed Rate