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How Differing Interest Rates Can Price Some Buyers In, Out

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.

The National 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 affordability.

NAHB chart. Visit source link at the end of this article for more information.

© National Association of Home Builders

 

Source: To view the original article click here

Posted by Jackie A. Graves, President on February 7th, 2020 10:44 AM

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