Historically, when mortgage interest rates start rising, home prices start declining….. And though we are not seeing declines in home prices in all markets yet, I believe declines are coming within the next year!
Declines in home prices right now are delayed because there is a lack of homes on the market for sale, which we call low inventory.
Higher interest rates + Higher inventory = Lower home prices
I bought my first home in the 1970s at the age of 27 years old, and my mortgage rate was over 10 percent. I did not blink an eye over the rate and accepted it as normal. It was all I ever knew. But in full disclosure, the sales price for the home I bought was $22,000, and my payment was about $225 per month (principal, taxes, and insurance). My annual salary as a second year teacher was about $7,700. I was teaching 7th grade then.
When I purchased my second home, which was around 1985, my interest rate was again over 10 percent….As I recall, my interest rate on that home was about 12 percent…..The price of the home was $50,000, and my payment was about $700 per month (principal, taxes, and insurance). I was then an Assistant Professor at a community college, and my annual salary was about $24,000. I refinanced that home twice in the 1990s as the interest rate started declining. I never took the equity out of that home; I refinanced to lower my payment. The last time I refinanced that home, my interest rate was about 7.5 percent……I thought I had hit the jackpot with such a low interest rate. A rate of 7.5 percent then was considered to be extremely low…..
Today, the average interest rate is 7-something percent. And today, an interest rates of around 7 percent for most buyers is considered high……But, everything is relative! Times change!
To my thinking over the past few years, the low interest rates were too low and unsustainable….. I knew they would never last!
For buyers, the low interest rates over the past recent years on home mortgages (and on car loans) have been at give away rates…..
It should be noted that the low interest rates in recent past years have been hurting people financially with savings, especially retirees who invested over their working years in IRAs and various annuity plans. Their savings and investments did not earn much when interest rates were really low. Now people with savings are earning more on the money they have saved.
But for now, too many without a lot of savings who need a mortgage to buy a home have gotten priced out of buying for now…… Sad!
People living pay-check to pay-check are not doing so well…..For them, the economy is not good!
