Why think that interest rate increases will make homes less affordable?

Asked by Mark, 48307 Wed Aug 20, 2008

I have heard Realtors say that now is a good time to buy because interest rates will likely go up. Now, I understand that increased mortgage interest rates will increase the share of the monthly PITI payment made up by interest payments. So, if the overall PITI payment stays the same size, the principle payment (and hence the house price that one can afford) must go down.

So far, I think that I understand. But it seems to me that if interest rates rise -- and if buyers can afford less house -- then sellers will have to lower prices in order to sell. After all, if buyers cannot buy houses at current prices, then sellers will have to lower their prices in order to sell.

So, why not think that interest rate increases will be a wash for affordability?

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Scott Godzyk, Agent, Manchester, NH
Wed Aug 20, 2008
The problem now is the banks are not loaning money, there are very few who can qualify for what little programs are even available. The FED wont lower the rate as without the banks loaniong money it wouldnt bring about more buyers and it would affect the overall value of the US dollar. Once the tide turns the interest rates will hedge up as people will be willing to pay them just to get a loan. When the banks see they can start making money the cycle will start again. After the election look for the fed in early 2009 to raise the fed rates to boost the us dollar therefore decreasing the overall price of goods and comodities. The bottom line is that yes, now is a great time to but with lower interest rates and the lowest prices in years.
Web Reference:  http://www.ScottSellsNH.com
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