If mortgage rates remain at the post-pandemic average of 3.0%, it will neither help nor hurt affordability from this point.
To offset a rate rise to 4.1% (the pre-pandemic average in the above chart), home prices would have to decline by 13%.
To offset a rate rise to 4.9% (the high point in the graph reached in 2018), prices would have to drop by 21%.
If the inflation-worriers turned out to be right, and rates broke above their pre-pandemic range, perhaps mortgage rates might rise to 6%. This is not an outlandish number… it’s about 1% above the level reached in 2018, and is somewhat below the average rate for the decade of the 2000s. To offset the affordability hit from a 6% mortgage rate, home prices would have to drop by 30%.
None of these are predictions. (We think anyone who has a confident multi-year interest rate forecast is deluding themselves).
Rich’s four interest rate scenarios are kind of like Stephen Colbert’s frequent interview question: “George W Bush, great president, or greatest?”
