Do low interest rates really matter ? - Posted by Jeff,Ca
Posted by Jeff,Ca on July 01, 2002 at 22:44:35:
Are RE prices rising due to low interest rates? Does it really matter.
Rates are now at a 40-year low.
I?ve been wondering when rates will rise and what the effects they will have for investors buying the old-fashioned way taking out a 30 yr mortgages. Am of the opinion that rising rates will not matter and may bring on a buying opportunity for us. What are your thoughts??
It?s assumed that if rates rise prices will decline.
I regularly track median home prices monthly in the areas where my family has investments. Below are two tables of monthly median home prices in S.F. Bay Area that my family has RE investments in. Note the start of the decline around June 2001. The decline on average was 15%
Newark, CA 94560
Jun-02 $390,000.00
Dec-01 $354,000.00
Nov-01 $365,000.00
Oct-01 $375,000.00
Sep-01 $385,000.00
Aug-01 $385,000.00
Jul-01 $385,000.00
Jun-01 $405,000.00
May-01 $395,000.00
Apr-01 $395,000.00
Mar-01 $385,000.00
Feb-01 $395,000.00
Jan-01 $375,000.00
Dec-00 $385,000.00
Nov-00 $370,000.00
Oct-00 $355,000.00
Sep-00 $355,000.00
Aug-00 $345,000.00
Jul-00 $345,000.00
Decline from Peak 14.41%
Jun-02 $401,500.00
Dec-01 $410,000.00
Nov-01 $410,000.00
Oct-01 $412,000.00
Sep-01 $407,000.00
Aug-01 $400,000.00
Jul-01 $404,000.00
Jun-01 $420,000.00
May-01 $460,000.00
Apr-01 $469,000.00
Mar-01 $465,000.00
Feb-01 $450,000.00
Jan-01 $452,000.00
Dec-00 $440,000.00
Nov-00 $430,000.00
Oct-00 $419,000.00
Sep-00 $425,000.00
Aug-00 $426,000.00
Jul-00 $418,000.00
% Decline from Peak 16.81%
As an example lets use a FMV of 250K today and if rates rise from 6.75% to 9% and the decline is 15% will we better off or worse off? The difference is only $15.69 a month. So why all the hype about low rates.
Purchase Price $250,000.00
Down Payment $20,000.00
Number of Years 30
Interest Rate 6.75%
Principal/Loan Amount $230,000.00
PI Payment $1,491.78
Taxes $260.42
HomeOwners $58.33
PMI $153.33
Total $1,963.86
Purchase Price $212,500.00
Down Payment $20,000.00
Number of Years 30
Interest Rate 9.00%
Principal/Loan Amount $192,500.00
PI Payment $1,548.90
Taxes $221.35
HomeOwners $49.58
PMI $128.33
Total $1,948.17