Someone made the comment that home prices have gone down with the increase in mortgage interest rates: people just haven’t realized it.

How does one put numbers towards this statement?

Mortgage interest rates have increased):

• Around 3.5% for 11 years (mid 2012-year end 2022)
• Around 6.5% since start of 2022

FRED Chart source:

Note: Portland, Oregon Median House Value: $555K in March, 2021

Standard way to present increasing mortgage interest rates:

• A $500K home, 30-year mortgage, 100% down (second chart)
  • at 3.5% monthly payment = $2,245
  • at 6.5% monthly payment = $3,327
• Net: Buyer needs to find more money for monthly payment

Closer to the truth: a home buyer has talked to a banker prior to purchase and has a maximum monthly payment in hand.

How has the home purchase amount changed with a set monthly payment?

A $2,200 monthly payment, a buyer can purchase:

• With 3.5% interest, purchases a $500K home
• With 6.5% interest, purchases a $355K home

So this 3.0 point rise in mortgage interest rates, lowers the home value that can be purchased by 29% with all other variables around a home purchases staying fixed. This is the point the commentator made regarding lowering home values. Most people cannot simply increase their monthly payment to purchase a home.