Specialist · Salt Lake City, UT · Member since 2018 · 30 posts · 5 votes
Rates are likely to go up at the next two federal reserve meetings. This means that monthly mortgage payments will rise and these numbers will be eating into affordability for the average home owner. It also means that cash flow opportunities will likely decrease if you cannot increase rents.
How much does more expensive money decrease purchasing power of a home buyer? The difference between 3% and 5% on a 300k loan is $1265/month vs $1610/month = $345/month. That's pretty significant! To get back down to the same monthly payment, the loan would have to be $235k. That $65k reduction in home price is 21.6%!
I know that a 3% mortgage rate doesn't really exist anymore, but am I doing these calculations right? Will, all else being equal, home prices need to drop significantly to provide the same opportunities that were available a few years ago?
@Jeff Lundeen Short run, higher mortgage rates mean either lower prices or longer days on market and/or fewer sales.
Longer run interest rates go up due to inflation. Higher home prices and rents are part of that inflation. Longer run inflation is good for those that hold real estate especially leveraged real estate.
Keep in mind the short term Fed rate does not correlate to longer term rates. They can move independently. Mortgages are based on 10 year rates.