• Client Info
  • Realtor Info
  • Seller Login
  • Contact

Boulder Property Network

Boulder Property Network

Boulder County Real Estate

  • Home
  • Search Real Estate Listings
  • Duane’s Timely Topics
  • Results Count
    • Why We Work by Referral
    • Testimonials
  • Our Team
    • Timmy Duggan
    • Barb Passalacqua
    • Kelsey Jensen
    • Duane Duggan
  • Real Estate Blog
You are here: Home / Boulder Real Estate Blog / Do falling home prices offset higher interest rates?

Do falling home prices offset higher interest rates?

October 25, 2022 by The Boulder Property Network

Now that interest rates have risen from the 3.5% range to the 7% range, will home prices decline to balance out the purchasing power?
Looking at historical evidence, it shows that sharply rising mortgage rates tend to slow home price appreciation and affect housing market activity. However, nominal price appreciation in most of Colorado remains positive. During previous times in which interest rates increased, we never had such a housing shortage like we do now. Therefore, even though housing affordability has been reduced, home prices are unlikely to decline dramatically. As a result, affordability challenges are likely to continue.

In fact, in the example below, prices would have to drop considerably in order to change purchasing power to the extent that rising interest rates have done.

Assuming the following scenario, rates go 7% but the price of a home drops $100,000, from $750,000 to $650,000.

If you bought a $750,000 house with a 20% or $150,000 down payment and a 3.5%, 30-year amortized $600,000 loan, the monthly principal and interest payment would be $2,694.27. Now, let’s say the price of the same house has dropped to $650,000 but the interest rate is now 7%. The 20% down would be $130,000 and the 80% loan would be $520,000 and would have a monthly principal and interest payment of $3,459.57. That is $765.30 more than the old payment, even with a $100,000 drop in price.

Let’s take it to the next level. If the price of the house were to drop to $550,000, the down payment drops to $110,000 and the 80% loan becomes $440,000. At 7%, the $440,000 loan would have a monthly principal and interest payment of $2,927.33. That is still $233.06 a month higher than the purchase at $750,000 at 3.5%.

Bottom line, it would take substantial price drops for the monthly payments to balance out the higher interest rates. Due to the continued lack of housing across the nation, the odds of prices dropping to the magnitude in the example above, due to rates at 7%, is pretty slim. After all, being a Realtor who lived through the 16% mortgage rates of the 1980s,
7% doesn’t look that bad.

In much simpler terms, here is how purchasing power changes for every $1,000 borrowed on a 30-year amortized loan:

  • $1,000 30 years 3.5% $4.49 a month
  • $1,000 30 years 7.0% $6.65 a month
  • $1,000 30 years 16% $13.45 a month

There is no question that as rates rise, a few more homebuyers are taken out of the marketplace. We are already seeing the market adjust with interest rate buydowns, variable rate mortgages, owner financing, and price adjustments. As always, consult your real estate professionals for advice that matches your needs to the market.

By Duane Duggan. Duane has been a Realtor for RE/MAX of Boulder since 1982. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail DuaneDuggan@boulderco.com, call 303.441.5611 or visit BoulderPropertyNetwork.com.

Filed Under: Boulder Real Estate Blog, Duane's Timely Topics, Real Estate Investment Information Tagged With: #bouldercountyhousingmarket, #bouldercountyrealestate, #boulderrealestate, #coloradorealestate, #firsttimehomebuyer, #homebuyer, #homeownership, #homeprices, #homeseller, #housingmarket, #interestrates, #mortgage, #mortgagerates, #realestateinvestments, #seniorhousing

Contact Us

  • This field is for validation purposes and should be left unchanged.

Blog Archives

Featured Listings

$199,700For Sale!1199 Brainard Lake Ward, CO 80481View Listing
Lot 12: $173,000 / Lot 13: $174,700For Sale!0 5th St (Lot 12 & 13)Nederland, CO 80466View Listing

See all of our listings.

Recently Sold Properties

389,700Sold3365 Chisholm Trl B101Boulder, CO 80301View Listing
$2,997,000Sold3080 Galena WayBoulder, CO 80305View Listing
$649,700 Sold271 Jefferson AveLouisville, CO 80027View Listing
$628,700Sold170 Golden Gate Canyon RdBlack Hawk, CO 80422View Listing
$655,000Sold2323 Buttercup CtSuperior, CO 80027View Listing
$595,000Sold1513 Sepia AveLongmont, CO 80501View Listing
$873,000Sold5455 Lee Hill DrBoulder, CO 80302View Listing
$451,000Sold311 Windance RdEstes Park, CO 80517View Listing
$235,000 / 280,000Sold765 Pine St & 797 Pine StNederland, CO 80466View Listing
$770,000Sold705 Club Pl.Louisville, CO 80027View Listing

Tweets by BoulderPropNet

Download our App

Boulder Property Network AppGet the Boulder Property Network mobile app to start your search for a new home right from your phone or other mobile device!

Download it here >>

Neighborhood News Report

How's the market? We can provide you with accurate information on the real estate market activity (Listings , Sales & more) in the area you are most interested in!

Get your Neighborhood News here >

Free Home Valuation

Free Market ReportBoulder Property Network can provide you with the information that you need to make a plan for your real estate purchase or sale.

Get your home valuation >>

Looking to Sell?

Looking to Buy?

Information for Investors

Recommended Reading for REALTORS®

REALTOR® for Life

by Duane Duggan

realtor-for-lifeWhat does it take to be a REALTOR® for life? This book provides first hand knowledge from one of the most distinguished and active careers in real estate. Duane Discusses his newly published book here.

Purchase on Amazon

© 2023 Boulder Property Network • RE/MAX of Boulder Inc.
2425 Canyon Blvd. #110, Boulder, CO 80302
800-825-7000 x611

Boulder Property Network on FacebookBoulder Property Network on TwitterDuane Duggan on LinkedinOur listings on YouTubeDownload our Listings App
Site Map