How to put historical interest rates vs home values into perspective.
It’s hard to predict where internet rates will take home values, but as history has shown, it can be a Fool’s Game to try and play the market. Akin to the depiction in this post, the consequences can be painful.
Take for example Interest rates in August of 1993—they stood at 6.97%. By November of 1994—just 15 months later they were up 2.28% ↑ to 9.25%. How did home prices react to the sharp increase in interest rates? The went up .52% points during the same period—no dramatic dip that made it worthwhile to try and wait out the effects of higher rates.
Here’s a real-world example. Let’s say one bought a $2,000,000 home today with a 4.5% interest rate. A monthly interest payment would be ~$1,000 less each month than if the rates go up to 5.5%. Here’s an on-line calculator to run scenarios.
What does $1,000 a month translate into purchasing power? In the above example, $200,000. Which means that if the rates go up to 5.5%, home values would have to drop in step with that increase 10% for one to just breakeven vs buying now at 4.5%. Why wait for a higher 5.5% rate to put downward pressure on home prices—which as history as shown, there’s no guarantee will happen.
In our observations, being in the sector of tech heavily weighted jobs, wherein many are reliant on stock options for their downpayment, any hit to the financial markets makes it unlikely that buyers will liquidate stocks to buy a home. In our world, that and job security (e.g. Consumer Confidence—which is up recently), has a greater impact on buying activity than interest rates.
Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 30 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine are ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California. They may be reached at (650) 508.1441 or emailed at firstname.lastname@example.org.
The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.