Mortgage Interest Rate Perspective

<p>Interest Rates</p>

Interest Rates

 


Rates Are High??

Today I had a conversation with a prospective client who called to discuss a condo in Pacifica.  We talked about the complex, the market, recent sales and then I hear,  “But interest rates are high right now.”  I had to say – I couldn’t resist, “It depends on what you’re comparing it to.”

The timeliness of Jim Duncan’s post couldn’t be better.  We have to put this in perspective.  

Interest Rates/Housing Price See-Saw

There’s plenty of debate about whether or not interest rates and housing prices are on a see-saw.  Charles Hugh Smith says yes.   Angry Bear says no: Historically interest rates have been largely irrelevant to the price of a house.   Arcadia Housing Blog says yes.  I say it proves one thing:  It depends on who you ask.

Show Me

I’m no statistician, but I don’t see it.  The chart at the this link shows the annual average sales price history for California from 1968 to 2006.  Then compare that to the interest rate history link here.

1975 to 1991 averages sales prices rise; 41,600 to 200,660.   Rates go between 8.5 to 16.32.

1992 to 1996 prices drop; 197,030 to 177,270.  Rates are 7.03 to 9.2.

1997 to 2006 prices increase 556,640.  Rates are 5.45 to 8.52.

Maybe I’m comparing the wrong dates to the wrong rates.  If you’re a pencil pusher and have a calculator, explain it to me.  I don’t get it.

Vicki Moore About Vicki Moore

Office:
RE/MAX Star Properties
282 Redwood Shores Parkway
Redwood Shores, CA 94065

By Phone:
650.888.9268

Comments

  1. Lurker Lou says:

    There are many variables that dictate the Average Sales Price for a certain time period. Some of these are Interest Rate, Family Income, value of the dollar, size of the home, supply versus demand, etc… For example, median homes built in the sixty are smaller in square footage than those built in the eighties, etc… Inflation also cause home price to increase over time. And ultimately, lenders limit on thirty percents of annuall income toward a mortgage in combination with the cost of interest rate is a big force for a ceiling on home price. After all, for most families the most you can pay for a home is how much the bank is willing to lend you, base on your income limit and cost of interest. If interest cost is low, you can borrow more and you will pay more for the same house. If you don’t the next guy will and he will end up with the house. If interest cost is high, your loan amount will be lower and so is that of the next guy. So with higher interest cost people can borrow less and unfortunately afford to pay less for the same house. This is an example of a median income family purchasing a median range home for example purposes.

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