Tradeoff between higher interest rates and home prices

[werewolf34]

Can somebody talk me through how I should analyze the effects of higher interests on home prices?

I know higher rates mean lower home prices (generally) b/c people think monthly payments when buying a home.

More specifically, I’ve been told that a 1% rate increase lowers a home price (SFR) about $100K as a rule of thumb. Does this rule hold for SD?

What about condos?

[XBoxBoy]

[quote=werewolf34]More specifically, I’ve been told that a 1% rate increase lowers a home price (SFR) about $100K as a rule of thumb. Does this rule hold for SD?[/quote]

I don’t think this is true anywhere. The amount of discount due to a 1% rate increase would be dependent on the price of the home. So, no set dollar amount would be valid. (It would be true if we were discussing a very specific price range)

If you would like to see what a 1% rate increase will do to home prices, you could play with a mortgage calculator. Pick a monthly payment and a down payment and vary the interest rate.

But, keep in mind that this experiment is not the complete picture. Yes, prices of homes vary with interest rates, but they also vary with people’s attitudes. The housing bubble occurred mostly when interest rates were higher than they currently are. Rates have dropped as house prices have dropped, so clearly there is more at play here than just interest rates.

[XBoxBoy]

[quote=werewolf34]More specifically, I’ve been told that a 1% rate increase lowers a home price (SFR) about $100K as a rule of thumb. Does this rule hold for SD?[/quote]

I don’t think this is true anywhere. The amount of discount due to a 1% rate increase would be dependent on the price of the home. So, no set dollar amount would be valid. (It would be true if we were discussing a very specific price range)

If you would like to see what a 1% rate increase will do to home prices, you could play with a mortgage calculator. Pick a monthly payment and a down payment and vary the interest rate.

But, keep in mind that this experiment is not the complete picture. Yes, prices of homes vary with interest rates, but they also vary with people’s attitudes. The housing bubble occurred mostly when interest rates were higher than they currently are. Rates have dropped as house prices have dropped, so clearly there is more at play here than just interest rates.

[XBoxBoy]

[quote=werewolf34]More specifically, I’ve been told that a 1% rate increase lowers a home price (SFR) about $100K as a rule of thumb. Does this rule hold for SD?[/quote]

I don’t think this is true anywhere. The amount of discount due to a 1% rate increase would be dependent on the price of the home. So, no set dollar amount would be valid. (It would be true if we were discussing a very specific price range)

If you would like to see what a 1% rate increase will do to home prices, you could play with a mortgage calculator. Pick a monthly payment and a down payment and vary the interest rate.

But, keep in mind that this experiment is not the complete picture. Yes, prices of homes vary with interest rates, but they also vary with people’s attitudes. The housing bubble occurred mostly when interest rates were higher than they currently are. Rates have dropped as house prices have dropped, so clearly there is more at play here than just interest rates.

[XBoxBoy]

[quote=werewolf34]More specifically, I’ve been told that a 1% rate increase lowers a home price (SFR) about $100K as a rule of thumb. Does this rule hold for SD?[/quote]

I don’t think this is true anywhere. The amount of discount due to a 1% rate increase would be dependent on the price of the home. So, no set dollar amount would be valid. (It would be true if we were discussing a very specific price range)

If you would like to see what a 1% rate increase will do to home prices, you could play with a mortgage calculator. Pick a monthly payment and a down payment and vary the interest rate.

But, keep in mind that this experiment is not the complete picture. Yes, prices of homes vary with interest rates, but they also vary with people’s attitudes. The housing bubble occurred mostly when interest rates were higher than they currently are. Rates have dropped as house prices have dropped, so clearly there is more at play here than just interest rates.

[XBoxBoy]

[quote=werewolf34]More specifically, I’ve been told that a 1% rate increase lowers a home price (SFR) about $100K as a rule of thumb. Does this rule hold for SD?[/quote]

I don’t think this is true anywhere. The amount of discount due to a 1% rate increase would be dependent on the price of the home. So, no set dollar amount would be valid. (It would be true if we were discussing a very specific price range)

If you would like to see what a 1% rate increase will do to home prices, you could play with a mortgage calculator. Pick a monthly payment and a down payment and vary the interest rate.

But, keep in mind that this experiment is not the complete picture. Yes, prices of homes vary with interest rates, but they also vary with people’s attitudes. The housing bubble occurred mostly when interest rates were higher than they currently are. Rates have dropped as house prices have dropped, so clearly there is more at play here than just interest rates.

[davelj]

[quote=werewolf34]

I know higher rates mean lower home prices (generally) b/c people think monthly payments when buying a home.

[/quote]

This makes sense intuitively, but is not borne out by historical experience. For example, housing prices increased dramatically during the 70s and early-80s even though rates were increasing, because rents were tracking (high) inflation. Folks bought as a hedge against future inflation despite the high interest rates.

That may or may not happen this time around. It’s too early to tell. I think higher interest rates will hurt the housing “recovery” for a while… but longer term it’s hard to say.

[davelj]

[quote=werewolf34]

I know higher rates mean lower home prices (generally) b/c people think monthly payments when buying a home.

[/quote]

This makes sense intuitively, but is not borne out by historical experience. For example, housing prices increased dramatically during the 70s and early-80s even though rates were increasing, because rents were tracking (high) inflation. Folks bought as a hedge against future inflation despite the high interest rates.

That may or may not happen this time around. It’s too early to tell. I think higher interest rates will hurt the housing “recovery” for a while… but longer term it’s hard to say.

[davelj]

[quote=werewolf34]

I know higher rates mean lower home prices (generally) b/c people think monthly payments when buying a home.

[/quote]

This makes sense intuitively, but is not borne out by historical experience. For example, housing prices increased dramatically during the 70s and early-80s even though rates were increasing, because rents were tracking (high) inflation. Folks bought as a hedge against future inflation despite the high interest rates.

That may or may not happen this time around. It’s too early to tell. I think higher interest rates will hurt the housing “recovery” for a while… but longer term it’s hard to say.

[davelj]

[quote=werewolf34]

I know higher rates mean lower home prices (generally) b/c people think monthly payments when buying a home.

[/quote]

This makes sense intuitively, but is not borne out by historical experience. For example, housing prices increased dramatically during the 70s and early-80s even though rates were increasing, because rents were tracking (high) inflation. Folks bought as a hedge against future inflation despite the high interest rates.

That may or may not happen this time around. It’s too early to tell. I think higher interest rates will hurt the housing “recovery” for a while… but longer term it’s hard to say.

[davelj]

[quote=werewolf34]

I know higher rates mean lower home prices (generally) b/c people think monthly payments when buying a home.

[/quote]

This makes sense intuitively, but is not borne out by historical experience. For example, housing prices increased dramatically during the 70s and early-80s even though rates were increasing, because rents were tracking (high) inflation. Folks bought as a hedge against future inflation despite the high interest rates.

That may or may not happen this time around. It’s too early to tell. I think higher interest rates will hurt the housing “recovery” for a while… but longer term it’s hard to say.

[DataAgent]

“Can somebody talk me through how I should analyze the effects of higher interests on home prices?”

Unlike Treasury Bonds, there is no direct relationship between home prices and interest rates. Home prices could actually rise as interest rates rise. This scenario is not only possible, it actually happened several times in the past.

[DataAgent]

“Can somebody talk me through how I should analyze the effects of higher interests on home prices?”

Unlike Treasury Bonds, there is no direct relationship between home prices and interest rates. Home prices could actually rise as interest rates rise. This scenario is not only possible, it actually happened several times in the past.

[DataAgent]

“Can somebody talk me through how I should analyze the effects of higher interests on home prices?”

Unlike Treasury Bonds, there is no direct relationship between home prices and interest rates. Home prices could actually rise as interest rates rise. This scenario is not only possible, it actually happened several times in the past.

[DataAgent]

“Can somebody talk me through how I should analyze the effects of higher interests on home prices?”

Unlike Treasury Bonds, there is no direct relationship between home prices and interest rates. Home prices could actually rise as interest rates rise. This scenario is not only possible, it actually happened several times in the past.

[Author]

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