irvinehomeowner
Well-known member
So one of the things that gets pushed on the IHB is that interest rates can't stay this low for long and when they rise, prices will have to go down.
So I had my 1st grader do some math and this is what we came up with:
Say you bought one of those Woodbury 2010 New Home Collection houses for $750,000 at 5% interest. You put $150k down (20%) and you have a loan of $600,000.
Your monthly payment would be about $3220.
If interest rates rose to 6%, to get the same monthly payment, your loan should be around $537,000. Add your $150k back and you're looking at a sales price of $687,000.
Now if that rate rose to 7%, your loan would be around $485,000, meaning your sales price would be $635,000. And to make it worse, you only wanted to put 20% down instead of your $150k, then that price would have to be $606,250.
So even if interest rates were to rise to 7% in the next 2-3 years... do you really think a home that sold for $750k today... will be selling for $635k (or $606k) in 2013?
That's nominally a 15-20% drop. So I should wait for those $1mil homes to come down to $800-850k?
Just like the opposite of gravity... what goes up is faster than what goes down. Do any of you think that when people start pricing homes for sale that they are going to take into account higher interest rates and adjust accordingly?
"Oh... we would have sold this home for $750k when interest rates were 5%, but now that they are 7%, I guess we can list it for $620k"
I'm not a real estate expert, a math wizard or an accountant, but something tells me that my psychology minor is really coming in handy here because I think it's much harder to push these prices down than some analysts think.
What am I missing?
[bear shields activate]
EDIT: Sorry... OCD about typos and grammar stuff.
So I had my 1st grader do some math and this is what we came up with:
Say you bought one of those Woodbury 2010 New Home Collection houses for $750,000 at 5% interest. You put $150k down (20%) and you have a loan of $600,000.
Your monthly payment would be about $3220.
If interest rates rose to 6%, to get the same monthly payment, your loan should be around $537,000. Add your $150k back and you're looking at a sales price of $687,000.
Now if that rate rose to 7%, your loan would be around $485,000, meaning your sales price would be $635,000. And to make it worse, you only wanted to put 20% down instead of your $150k, then that price would have to be $606,250.
So even if interest rates were to rise to 7% in the next 2-3 years... do you really think a home that sold for $750k today... will be selling for $635k (or $606k) in 2013?
That's nominally a 15-20% drop. So I should wait for those $1mil homes to come down to $800-850k?
Just like the opposite of gravity... what goes up is faster than what goes down. Do any of you think that when people start pricing homes for sale that they are going to take into account higher interest rates and adjust accordingly?
"Oh... we would have sold this home for $750k when interest rates were 5%, but now that they are 7%, I guess we can list it for $620k"
I'm not a real estate expert, a math wizard or an accountant, but something tells me that my psychology minor is really coming in handy here because I think it's much harder to push these prices down than some analysts think.
What am I missing?
[bear shields activate]
EDIT: Sorry... OCD about typos and grammar stuff.