From Nov. 2018 to Nov. 2020, the median single-family house price in metro Phoenix increased $75,100 but because of lower mortgage interest rates, the monthly principal & interest payment FELL $27 a month.
I talked about this last week and am becoming more and more convinced that, by far, the biggest reason for the crazy fast increases in house prices in 2020 has been the falling interest rates.
In March, the Fed cut the Fed rate 1.5 percentage points.
The Fed rate fall caused mortgage rates to fall but mortgage rates didn’t fall all in one month like the Fed rate. But as time went on, that Fed rate cut in March was slowly translating into lower 30-Year Fixed Rate Mortgage rates. Now, the mortgage rate is down 1.0 percentage point from early January.
Impact of Lower Mortgage Rates
Metro Phoenix
November 2018
30-Yr Fixed Rate Mortgage Rate = 4.9%
Median Single-Family House Sold Price = $279,900
Monthly Principal & Interest Payment on $279,900 = $1,486/Month
November 2018
30-Yr Fixed Rate Mortgage Rate = 3.7%
Median Single-Family House Sold Price = $300,000
Monthly Principal & Interest Payment on $300,000 = $1,381/Month
November 2020
30-Yr Fixed Rate Mortgage Rate = 2.8%
Median Single-Family House Sold Price = $355,000
Monthly Principal & Interest Payment on $355,000 = $1,459/Month
Takeaway
From November 2018 to November 2020, the median single-family house price in metro Phoenix increased $75,100 but because of lower mortgage interest rates, the monthly principal & interest payment FELL $27 a month.
That’s the #1 reason the real estate market is in a frenzy – lower mortgage interest rates.
(The example uses 30-year, fixed rate mortgages with no down payments to simplify things.)
2021 House Prices
There is some potential for mortgage rates to fall a little bit more but even if mortgage rates don’t fall any more, the declines we’ve already seen in 2020 should put strong upward pressure on house prices in 2021, and maybe even into 2022.
[Here’s a look at how inflation and interest rates affect the Case-Shiller Home Price Index for 20 cities, including Phoenix.]
Tell me in the “Comments” what you think.
This information can vary a lot in different parts of metro Phoenix. Your real estate agent can find the data for your specific city or zip code at The Cromford Report.
Note. This post was written on November 29, 2020 but the graphs will be continually updated.
2 Responses to #1 Reason Phoenix Home Prices are Skyrocketing
The prices today in Phoenix don’t even seem real. I feel sad for first time home buyers.
Yeah, it’s got a 2004 vibe to it.
Comments are closed.