Realty411 Magazine Featuring Scott Meyers | Page 87
Interest Rate and
Home Price Swings
By Rick Tobin
H
istorically, the #1 reason
why home prices
generally rise, remain
flat, or fall is directly related to the
latest 30year fixed mortgage
rates. This is true because the vast
majority of home buyers need
thirdparty funds from banks,
credit unions, or mortgage
professionals to purchase and sell
their homes to new buyers who
also usually need bank financing
to cash the seller out.
Over the past 10 years, a very
high percentage of mortgage loans
used to acquire residential (oneto
four unit) properties have originated,
directly or indirectly, from some
form of governmentowned,
backed, or insured money, such
as FHA (Federal Housing
Administration), VA (U.S.
Department of Veterans Affairs),
USDA (U.S. Department of
Agriculture for more rural
properties), Fannie Mae, Ginnie
Mac, and Freddie Mac in both the
primary and secondary markets.
Most of these same government
assisted mortgage programs allow
buyers to purchase properties with
as little as no money down to just
3.5% down payments. Many
times, the seller and family
members can credit the most or all
of the closing costs or down
payment requirements so that the
buyer really has no money
invested in the property.
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To the buyer, the most
important part of the purchase
deal is related to qualifying for a
very low 30year fixed mortgage
rate and an affordable monthly
payment. When the interest rates
are too high, then fewer buyers
can qualify for properties.
During these higher rate time
periods, home prices typically
stay neutral or fall in price as
seen during past periods of
deflation like back in the mid
1970s. As such, almost all
“boom” (positive) or “bust”
(negative) housing cycles are
directly related to low or high
rates of interest, so they tend to
correlate or go handinhand
with one another.