Interest rates and home affordability

Home affordability in the United States is nothing short of amazing. The chart below dramatically illustrates the impact of lower interest rates on housing costs, and the relative affordability of housing in the United States. The cost of a loaf of bread and a gallon of gas has more than tripled since 1989, and car prices have nearly doubled. While the median price of a new home has increased by 70 percent, mortgage interest rates, which stood at 10 percent back in 1989, are less than half of what they were back then. The impact of rock-bottom interest rates is that the monthly mortgage payment on a median priced home in the United States has increased by a mere $4 since 1989.

Unless you’re paying cash, the monthly payment tends to be a far more important than the home’s actual purchase price. So if you’ve been waiting for home prices to hit the floor you shold realize that a slight drop in the price of a home will have very little impact on the monthly payment, while even a slight rise in interest rates (a far more likely scenario) will have a significant impact.

Want to know more? Give me a call if you or someone you know is interested in exploring a specific purchase. I’m never too busy to take your call.