The Impact of Increasing Mortgage Rates on Prices And Why I Dont’ Agree

Sotheby’s Real Estate Newton, MA.  Top Brokers Newton, MA.

The following article is a reprint from the KCM Crew (Keeping Current Matters).  I respect their content and attitudes but I just can’t agree with this way of thinking right here in Greater Boston.  Real estate is local and our home prices are significantly higher than most areas of the country.  A 1% increase in interest rates translates to about 10.75% reduction in borrowing power.  The average price in Newton is now over 1 million dollars.  The COST of a 1 million dollar house will now cost 10.75% more per month.  If a buyer were to put down 20% on a million dollar house and  mortgage 800,000 at 4.5% on 30 year fixed rate a monthly payment would be $4,053.00 at 5.5% the payment goes to $4,542.00.  Now I know many/most are saying who cares if someone can afford an $800,000.00 mortgage, they can afford an extra 500.00 a month or $6,000.00 per year.  Believe me, most people borrow to their upper limits.  The new lending guidelines state that all of your monthly expenses: mortgage, taxes, car payments, insurance, student loans can not exceed 43% of your GROSS income.  Something will have to give…..

The Impact of Increasing Mortgage Rates on Prices

by  on January 14, 2014 in Interest Rates


blue interest ratesMany pundits are warning that there will be a drop in real estate values because mortgage rates are beginning to increase. The logic makes sense. However, history shows that increasing rates have not negatively impacted home values in the past.

Four times over the last 30 years mortgage interest rates have dramatically increased. Here is the impact the increases had on home values at the time:


Mortgage Rate

Home Values

May ‘83 – July ‘84

12.63 – 14.67

+ 6.6%

March – Oct ‘87

9.04 – 11.26

+ 5.2%

Oct ’93 – Dec ‘94

6.83 – 9.2

+ 1.2%

April ’99 -May 2000

6.92 – 8.52

+ 10.9%

Perhaps the impact of increasing rates on future home prices won’t be as dramatic as some are predicting.

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