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There are a few different ways to evaluate our market. We can look at pricing, but it’s also good to calculate how interest rates have affected our monthly payments. For example, last year a home that sold for the average price of $4,257,163 had a monthly payment of $18,282.70. This is assuming a standard 20% down and a 30 year fixed rate mortgage.
For 2023, we have seen both pricing and interest rates increase. As a result, this year an average sales price is $4,418,245, but the monthly payment is a whopping $23,278.85. The monthly payment change between last year and this year has increased by 27% even though actual pricing has only increased by just under 4%.
The question becomes, if the Federal Reserve is near the end of their rate hikes and expecting to decrease rates in the future, how does this affect pricing moving forward? If the Federal Reserve drops rates and mortgage rates come down even by 2%, which is still higher than what rates were at just one year ago, the monthly payment of $23,278.85 becomes a purchase price of $5,383,500.
This means that if you are in a position to consider purchasing property without a loan, now is probably the time to do so as home prices are suppressed with higher mortgage rates. If and or when rates are to come down by 2%, this becomes a change in purchase price by almost 22%. For a simplified visual chart, take a peak below.
Current Hypothetical
2023 Monthly Payment of $23,278.85 2024 Monthly Payment of $23,278.85
Interest Rate 6.75% Interest Rate 4.75%
Purchase Price is $4,418,245 Purchase Price is $5,383,500
If you are interested in purchasing a property and you can do so with cash, you might get a lower purchase price today, than if you are to wait because the expectation is for interest rates to come down in the future. Also, keep in mind that a seller’s market is considered anything less than a 6 month supply of inventory.
