Originally Posted by
farscott
My crystal ball is foggy, cracked, and chipped but I believe the housing market will slow as interest rates rise. Home prices are based on monthly payments, and monthly payments are based on interest rates. If someone has a budget for a $2000 mortgage payment and rates are 2.5%, the purchase price is much higher than if the rate is 4.5t% for the same loan. At 2.5%, the mortgage principal can be $300,000 for a fifteen-year note. At 4.5%, that same payment allows for a principal of less than $262,000. That lowers the amount borrowed by more than 10%. If rates get to 6% for that fifteen-year note, the principal drops to $237,000 for that same $2000 payment. It is not hard to see how this puts downward pressure on home prices.