The Expert Podcast

• We explore how lower interest rates affect home affordability using a mortgage calculator.
• Example: A $540,000 loan amount on a 30-year fixed mortgage at 3.8% interest (rate from about a year or more ago).
• For a $600,000 house (above average price in many markets), monthly mortgage payment is roughly $2,525.
• This loan amount reflects the price minus a down payment (e.g., $600k house minus down payment might finance $540k).
• Now, consider a hypothetical 20% drop in real estate values (a major price crash some predict).
• If the home price falls to $410,000 but interest rates rise to 6.8%, the monthly payment increases to about $2,681.
• Despite the house price dropping by $100,000, the mortgage payment actually goes up due to the higher interest rate.
• This means that the supposed price crash did not improve affordability; it actually made it worse.
• Some might argue refinancing later could help if rates go down, but historically, mortgage rates at 6.8% are still low.
• Mortgage rates in the late 70s and early 80s often ranged from 8% to over 10%, so rates could remain high or increase further.
• If rates climb to 8.8%, monthly payments for a 20% lower price could reach $3,249.
• A smaller price drop (e.g., 10%) to $460,000 with a 6.8% rate results in about a $3,600 monthly payment.
• Overall, affordability may not improve much even with significant price drops if interest rates are higher.
• Additionally, higher insurance, taxes, HOA fees, maintenance, and repairs further increase total homeownership costs.
• The net effect is that monthly mortgage payments today could be higher than two or three years ago for the same house.
• Interestingly, rising rates may not fully push home prices down because demand remains high—more people need homes now than 5–10 years ago.
• This dynamic means the relationship between interest rates and home prices is evolving and not as tightly linked as before.