Home Buyers - Declining Home Prices vs. Higher Interest Rates

Real Estate Agent with Keller Williams CA.BRE# 01395219

Many times I get asked, especially in todays market, what affects does declining home prices really have on the market vs. higher interest rates?  There are number of differences but the most obvious one that new home buyers need to look at doesn't really have anything to do with the price reduction rather the interest rate. 

I find many home buyers are making the assumption that because the pricing in some areas is going down that their payments or the amount of house they can buy will change dramatically.  However one thing that is not taken into consideration is the current interest rate.  So what are buyers doing waiting.....and waiting and waiting.....for the huge price drop in the market. 

While missing the fact that interest rates are going up.  Though interest rates are still at historic lows, a radical federal reduction is not anticipated in the near future which tends to lead to the idea that rates will continue on an upward trend.  Now my crystal ball may be a little foggy but even if we take the most recent up tick in interest rates, the scenario between declining home prices vs. higher interest rates is still important to look at.

I thought this quick little illustration would help home buyers realize why NOW is a great time to buy in Saddleback Valley.

Scenerio A: Todays Price = $650,000

  • 20% down payment = $130,000
  • Total Loan amount = $520,000
  • Interest rate (6.25APR) = 6%*
  • Monthly Payment = $3,117.66

Scenerio B: Future Reduced Price = $600,000

  • 20% Down Payment = $120,000
  • Total Loan Amount = $480,000
  • Interest rate (APR 7.25) = 7%*
  • Monthly Payment = $3,193,45

Total Price Difference between A & B - B = $75.79 per month MORE

Wow, that is a $50,000 price drop with an increase in your mortgage payment!

There is a third scenario that also needs to be looked at here in South Orange County and that is in many neighborhoods, though the number of home sales is down, pricing is steady and in some instances increasing. So when you see a $50,000 price reduction and the sold comparable support higher you'll know this is a good deal.  In addition, let's not forget with the lower interest rates, increase in inventory and the fact that sellers are ready to negotiate all lead to it being a great time to buy a home. 

As a professional Realtor(R) I recommend to buyers that you meet with at least three lenders who will work closely with you and your Realtor to ensure your entire needs are being looked including the timing of when you want to purchase your home.  So as the market changes you the buyer understand how it impacts you and you have two professionals on your side ensuring your objectives are met.

There are some great buys available in today's real estate market, should you like to review your options or search propertiesdirectly please do not hesitate to contact Kelly.

Kelly Turbevilleis one of South Orange County premier Realtors® focusing in the Saddleback Valley and the communities of Lake Forest, Portola Hills, Foothill Ranch, Trabuco Canyon, Mission Viejo and Rancho Santa Margarita.  Whether she's helping a first time buyer accomplish the goal of homeownership, or coaching a homeowner on how to use their equity to step up into a nice home or use it to buy an investment property or finding exclusive properties for the high end consumer. Kelly is committed to making it happen.  So if you're considering selling or buying a home in Saddleback Valley, call Kelly to schedule a free consultation. Whatever your dream, with Kelly at your side, It's Possible!

*(note: the above scenario is only intended as a guideline.  There are many variables in determining a consumers qualifications and how that affects an interest rate and loan program.  The above rates were based on a 30year fixed rate term)

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Kelly's positive spirit, sound business and marketing skills, and experience negotiating multimillion dollar contracts all combine to make her one of the premier real estate professional in the communities of Portola Hills, Foothill Ranch, Lake Forest, Trabuco Canyon and throughout the Saddleback Valley.


 She takes a big-picture approach to make sure all of your goals, both short and long-term, are part of a larger plan that's guiding you towards success. Call Kelly to schedule a free consultation on how she can help you achieve your objectives. Whatever your Real Estate Dream is, with Kelly Turbeville at your side, It's Possible!


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The above information is provied for informational purposes only and is deemed reliable but not guarenteed. Based on information from California Regional Multiple Listing Service, Inc. as of [date the AOR/MLS data was obtained] and /or other sources. All property data, including all measurements and calculations of area, is obtained from various sources and has not been, and will not be, verified by broker or MLS. All information should be independently reviewed and verified for accuracy. Properties may or may not be listed by the office/agent presenting the information


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Ethan Dozeman
Realty Executives Platinum Group - Grand Rapids, MI
Real Estate in Grand Rapids
It would be great to be able to convey the important details to our clients as rates took a big jump over the last 30 days.
Jun 25, 2007 01:29 PM #1
Laurie Mindnich
Centennial, CO
I had to scroll down ALOT to let you know that this post hits the nail on the head.
Jun 25, 2007 01:45 PM #2
Jack Haydon
Charles Rutenberg Realty - Clearwater Beach, FL
Clearwater Beach Condos - Real Estate Homes for Sale


Great post! I work primarily with buyers and have this general discussion regularly. Thank you for actually documenting the math!


Jun 25, 2007 03:24 PM #3
Kelly Turbeville
Keller Williams - Lake Forest, CA
Turning Real Estate Dreams into Reality

Ethan - I agree, I have so many conversation with potential buyers about the price declines but they very rarely ask about the upswing in rates. - Thanks for commenting

Laurie- Thanks for the comments, apologize for the lengthy scroll.

Jack - Thanks for the comments, I agree it is nice to have it documented now we just need a lender to do the same with all the other programs (simply)


Jun 25, 2007 06:13 PM #4
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