It wasn’t all that long ago that people were salivating over the prospects of a mortgage with an interest rate below 10%. It is not beyond the realm of reason to think that those rates couldn’t go back above 8% within the next couple years.
The thing to remember is that in addition to the cost of money at the “wholesale rate”, all the retailers of credit will have to factor in higher profit margins on their end, too. Instead of 2% above prime it could go back to 4% above prime.
The maximum (conventional fixed/30yr) loan a $3,000/month mortgage payment will support at a 6% interest rate is about $500,000; the maximum amount at 8% is about $410,000. That doesn’t include property taxes or insurance. So yeah, higher interest rates can and will affect pricing trends in those markets that are dependent on employment wages for debt service.
