Yesterday it was reported that 30-year mortgage rates hit a two year high.

What does this mean in real-world numbers? What is the history of the 30-year fixed? I took today’s rate, the rate one year ago, and the lowest recorded rate in recent history:

The difference between June 2003 and today is approximately equivalent to $100,000 in purchase price.

The difference between last year and today is approximately equivalent to $50,000 in purchase price.

If we’re looking at a purchase price of $750,000 with 20% down, this gives you the $600,000 loan amount used above.

If we use conservative price appreciation year-over-year of 10%, a house purchased a year ago for $750,000 would now sell for $825,000. Even if you knocked the mortgage rate increase out of that appreciation (roughly $50k – from calculation above), you still have positive price appreciation of at least $25k, and that doesn’t account for all of the other factors that cause houses to go up in price.

That’s just a 30-year mortgage comparison. That doesn’t account for some of the creative lending that allows people to leverage their money into larger purchases.

It is contributing to a balanced market, but is not enough to cause a downturn at this point. As more people refinance into fixed mortgages to get out of their adjustable equity lines, the market will stabilize even further.

Thanks to Monica DiPerna from Guarantee Mortgage for these calculations!

This entry was posted on Friday, March 10th, 2006 at 4:57 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.