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This is why interest rates matter so much in the “is a crash coming?” debate : RealEstate

April 7, 2022
in Real Estate
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This is why interest rates matter so much in the “is a crash coming?” debate : RealEstate
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2.75% interest rate (2021): https://imgur.com/a/wMLGZYB

4.76% interest rate (today): https://imgur.com/a/PZSJ158

Max affordable home price for this hypothetical buyer goes from $511k down to $430k. That’s a huge 20% swing for the exact same buyer with the exact same financial resource and income, just because of the interest rate hike alone.

Now that’s just a hypothetical example. Using my own personal numbers (we bought a house last year with a 3% rate on a jumbo loan), today if we wanted the same monthly cost that we have, we’d have to look at homes a full $250k cheaper than the one we bought.

It’s almost impossible for me to see how the rate hikes won’t at least significantly slow down the market. We haven’t seen the effects yet because the rate hikes happened so fast and many current-day buyers qualified with lower rates from the past.

Does this mean we’ll see an actual crash? I don’t know. I don’t want to go so far as to make that claim. There are a lot of affluent remote workers buying homes, which I see as the primary driver of all the post-COVID price growth. That hasn’t changed. But at some point we’re going to reach the limit of what all these affluent buyers are willing to pay, and the question really becomes how close we were to that limit before these rate hikes.


Tags: comingcrashDebateinterestmatterratesRealEstate
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