A few passages pulled from a piece published today in Seeking Alpha:
A.) In 1981, mortgage rates peaked at 18.50%. Since that time, they have declined steadily and now stand at a relatively paltry 4.50%. Over this 37-year period, individuals’ payments on mortgage loans also declined allowing buyers to get more for their money. Continually declining rates also allowed them to further reduce their payments through refinancing.
Consider that in 1990 a $500,000 house, bought with a 10%, 30-year fixed rate mortgage, which was the going rate, would have required a monthly principal and interest payment of $4,388. Today a loan for the same amount at the 4.50% current rate is almost half the payment at $2,533.
B.) The sensitivity of mortgage payments to changes in mortgage rates is about 9%, meaning that each 1% increase or decrease in the mortgage rate results in a payment increase or decrease of 9%. From a home buyer’s perspective, this means that each 1% change in rates makes the house more or less affordable by about 9%.
If you are waiting, or “timing the market” to squeeze every last drop of profit that can be had out of your home, consider this your alarm clock. Mortgage applications are already in decline across the country, and in Southern California, most people are now priced out of the market and have thrown in the towel. With further increases that ARE ALL BUT GUARANTEED over the next year in mortgage rates as the Fed sells off their inventory of mortgages, something has to give: mortgage rates or home prices.. guess which one it will be.