February 7th, 2020 10:44 AM by Jackie A. Graves, President
Low mortgage rates
can be a cost-savings boon to home buyers. But even the slightest difference in
rates can price some out.
Association of Home Builders, on its Eye on Housing blog, offers various
scenarios of the price differences in affordability with interest rates. For
example, take the median new-home price in 2020 of $345,908. The buyer gets a
standard mortgage interest rate of 3.75%. If the interest rate moves up just a
quarter of a percentage point, it would price about 1.3 million U.S. households
out of the market, according to the NAHB’s analysis. The NAHB factored in a 10%
down payment as well as an annual premium for private mortgage insurance,
property taxes, and homeowner’s insurance into its calculations.
On the other hand,
“a reduction in interest rates will price households into the market,” the NAHB
says. Recent drops in mortgage rates that started at the end of last year have
equated to about 44 million households that can now afford a median-priced new
home. The drop in rates has also brought the median-priced new home within
range to about 5.2 million additional households in 2020, the NAHB notes.
View this chart from
the NAHB to view the difference that interest rate fluctuations can make on
© National Association of Home Builders
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