Ultimately, housing prices are not a function of location, or interest rates, as much as they are a function of how much a person can afford. Of course, interest rates come into play in this determination, but people cannot change the amount they can afford at their whim, so that gives us a concrete starting point.
For example, if the average household could afford to pay $2000 per month (this is high), the maximum value of the home he could consider would fluctuate with interest rates. Assuming a 30-year rate of 4%, the maximum value would be $360,000 (CNN Calculator).
However, if interest rates increased from 4% to 5%, but the amount that person could afford to pay remained the same, the maximum amount that person could afford would be $320,000, or 11% less than he would have before. (I am including taxes and other related fees here.http://www.marketwatch.com/story/beware-of-housing-prices-2012-03-22?Link=obinsiteDON'T MISS! FREE LIST HUD PROPRTIES + GOVERNMENT FORCLOSURESÂ Â <-hit
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