I showed a home yesterday to a very analytical gentleman.
Many of my clients are numbers people; real estate investors, engineers of all stripes, IT guys, business owners, a former trader on the Chicago Mercantile Exchange, a current international investment banker, and similar people who appreciate my highly analytical approach to managing their buys and sells of real estate.
The gentleman yesterday believes that inflation is building and that although home prices in his area may decline a bit more, any such decline will be more than offset by increasing interest rates caused by inflation.
That is, he believes the downside risk of home prices is less than the downside risk of interest rates so he wants to buy soon.
I mentioned that some believe that after the U.S. presidential election the Federal Reserve will be more likely to increase interest rates but he hadn’t used that idea in his calculations.
Let’s see how this idea plays out.
Let’s say you take out a 30-year mortgage for $200,000 at 6.0% interest. The monthly payment will be $1,199.
- At 6.0% interest, $1,199 a month will get you a 30-year loan for $200,000.
- At 6.5% interest, $1,199 a month will get you a 30-year loan for $189,695.
- At 7.0% interest, $1,199 a month will get you a 30-year loan for $180,219.
- At 7.5% interest, $1,199 a month will get you a 30-year loan for $171,478.
- At 8.0% interest, $1,199 a month will get you a 30-year loan for $163,404.
What is your expectation for interest rates?