How changes in interest rates affect affordability (real estate, mortgage)

[Elke Mariotti]

Thought I'd post this simple illustration.

The mortgage amount I picked is arbitrary and not indicative of anyone's ability to qualify.

[mathjak107]

the problem is there are so many variables between rates and property values so it is not a direct relationship .

at times lower rates can lead to increased values causing less affordability. other times rates falling like 2008 can have values falling too . .

[Elke Mariotti]

This is merely about monthly cost to buyers, not meant to imply anything about value(s) of any property.

I someone has a budget of $2,500/mo, the current interest rate impacts the affordability with regard to the price of the home.

[longislanddude]

Yet prices will probably continue to rise in the next couple years as people want to 'lock in mortgage rates before they move higher'.

[TomMoser]

Originally Posted by longislanddude

Yet prices will probably continue to rise in the next couple years as people want to 'lock in mortgage rates before they move higher'.

I believe that this is one of the reasons that prices are rising right now.

[mathjak107]

historically the best housing appreciation has been with mortgages in the 6% range . in order for rates to be that high the economy has to be humming , people are making money and have money to spend .

it is all based on local markets for the most part . some time rising mortgage rates light a fire as people go we better buy now before we can afford even less house .

but that same thing has been said at times as rates have fallen and values went up .

[ovi8]

It is interesting... but it just means a different family will be able to buy it. Seems to be money coming in from anywhere and everywhere.

[nuts2uiam]

To piggy back off the chart, a question for Elke and Tom. How many of your current buyers are cash as opposed to in the past?
Granted the answer can vary by area and age of client but I am just wondering how that has fleshed out for you. There seem to be a lot of cash buyers lately.

[Spanky25]

Originally Posted by Elke Mariotti

Thought I'd post this simple illustration.

The mortgage amount I picked is arbitrary and not indicative of anyone's ability to qualify.

Attachment 190658

Moral of the story.....lock in a FIXED rate.
Those who want a variable rate should be approved based on a 10% rate.
Hence the housing mess in 2008 +/-

[Elke Mariotti]

Originally Posted by nuts2uiam

To piggy back off the chart, a question for Elke and Tom. How many of your current buyers are cash as opposed to in the past?
Granted the answer can vary by area and age of client but I am just wondering how that has fleshed out for you. There seem to be a lot of cash buyers lately.

Yes, there are more cash buyers at the moment.

You have downsizers - little or no mortgage but plenty of equity; enough to buy outright

Investors - they may have a line of credit or amassed enough $$ on previous deals to pay cash; or they're doing a 1031 exchange

Younger, cash rich buyers (maybe inherited $$ or accumulated bonus $$, etc.) willing to pay cash and maybe do a cash-out later (to leverage)

Foreign buyers who have lots of cash that they want to put into real estate (unlike equities, real estate is never a total loss because the land will always have some value). For some foreign buyers, real estate in the US is "a bargain" compared to values in their own country.