An in depth look at the math behind mortgage rates and housing trends

Over the course of the last 18 months interest rates have risen at near record speed to nearly 7%. Today Freddie Mac puts current interest rates at 6.81%, a number not seen since February of 2002. Twenty years ago, homes were a fraction of the cost that they are today, so the increase in interest rates today take on a whole new meaning when it comes to added cost. 

If you’ve decided that it makes more sense to wait until rates come down to buy a home, this article is for you. This article is going to examine the cost behind interest rates today compared to waiting to purchase when rates eventually do decrease. 

First, we’re going to use nice round numbers for our math, a $500,000 home, 10% down, and a 7% interest rate. This also happens to be the approximate average price of a home in the Charlotte region and the average interest rate buyers are getting on mortgages today. A mortgage on this house today would cost you $3,388 according to Bankrate.com. The same home with the same down payment at 5% interest would cost you $2,810. Doing the simple math, the 2% higher interest rate costs your $578 per month and $6,936 extra per year. 

Over the last decade home prices have increased with steady growth, around 2-3% per year until the COVID pandemic when home prices shot up in our area nearly 10-15% per year. Although this was abnormal, home prices have held due to our highly desirable location, climate, and schools and have actually continued to increase even despite higher rates. 

If we take into account the nominal increase seen prior to the COVID pandemic of 2-3% per year the average $500,000 home in 2023 is $510,000 - $515,000 in 2024 and $520,200 - $530,450 in 2025. Again, following simple math, in 2024 the same home from 2023 will cost you approximately $10,000 - $15,000 more, and $20,200 - $30,450 more in 2025. 

Based on this, you’re spending upwards of $3,064 - $16,578 more by waiting to purchase 1 to 2 years compared to purchasing now with a higher interest rate. Keep in mind that if rates do decrease you can also refinance to that same 5% interest rate in the next 1-2 years and benefit from a lower principal balance and an even lower mortgage payment due to buying at $500,000. 

There’s a lot more information to this kind of analysis and a lot of factors that can adjust these numbers. No one can predict the future so it’s impossible to tell you what’s next for our market. If you’d like to discuss this data further, discuss buying, seller, renting, or anything real estate related my team and I are more than happy to speak with you anytime at 980-250-2795.