We all want home prices to drop, right? (Well, except sellers, of course.)
But, what if interest rates increase? What happens then? Will it hurt the typical buyer?
It won’t be pretty.
Suppose the Boston real estate market cools (just suppose) and that prices drop by, say, 10%. So, a property on the market for $450,000 today might drop to $405,000, tomorrow.
A 30-year fixed-rate mortgage loan might have been around 5.45% this summer, but, today, the same loan, might cost you 5.85%, or more. Some economists are guessing rates could go as high as 6.5%, or higher.
So, let’s do the math. A 90% mortgage loan at 5.6% on a $450,000 purchase would give you a monthly payment of $2,325.
However, a 90% mortgage loan at 6.6% on a $405,000 purchase would give you a monthly payment of $2,327.
Savings? Well, actually, you’d have to pay $2 more a month to buy the same home.
In a perfect world, home prices will go down, and interest rates won’t go up, by much. In an evil world, home prices will go down, but interest rates will go up, a lot.