Homebuyers going bigger as rates go lower

  • November 13, 2012

With historically low interest rates and record high home affordability, consumers are in an enviable position like we have rarely seen.  They are now able to purchase larger homes, for lower costs and be perched in a great position to benefit from a slowly recovering housing market. 

What many potential home buyers might not realize is that the further interest rates drop, the greater value home they can afford.

As the chart below illustrates, a client paying $2,000 a month on a $325,000 home loan with a 6.0% interest rate in 2009 can now afford a home valued at $425,000 because of record low rates!

If the consumer with the $2000 monthly payment also put 10% down, they could then afford a $470,000 home. Today’s $470,000 homes were once worth $670,000 before home prices fell by 30 percent. If you combine record low rates with the drop in home prices over the past few years, homebuyers can essentially afford twice the home they previously could.

Not only can clients afford more home than they could in past years, but now some are able to achieve the dream of homeownership.

If you are interested in learning more about home ownership, as well as the flip in the rent vs. buy paradigm, please contact me at 313-338-2002 or johnperich@quickenloans.com to arrange a conversation with Quicken Loans Chief Economist Bob Walters.

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