House prices: how economic means change as interest rates vary
April 12, 10 by Mark75[AUTOMATIC TRANSLATION - SEE NOTE]
We have repeatedly reiterated that the decrease in interest rates tends to increase housing prices. It is worth to further clarify the mechanism since the topic is of interest to many. The question itself is very simple: point the fact is that the variation of interest rate changes the present value of total payments. In other words, if an interest rate of 1, 25% mortgage of 170,000 Euros to 35 years corresponds to a rate of € 500 at a rate of 5.00% the same installment is about 99,000 Euro mortgage, always with the same maturity.
Current value corresponding to rate of 500 € (various dates) – graph banknoise.com
Current value corresponding to rate of 500 € (various dates) – graph banknoise.com
In the graph we have reported the change in present value corresponding to a rate of € 500, referring to loans of various maturities, for rates ranging from 1, 00% to 10.00%. Important Note: a rate of 10.00% rate is not “absurd” or “inconceivable”, these rates were often touched in the past and it is not impossible that in future we will bring them closer to those values.
How dovrenbbe therefore appear obvious, the decline in interest rates increase the disposable income of those who contracted a loan, which can now afford homes “more expensive”, and can accept higher prices for the same house. The competition created between buyers and then pushes up prices.
It should be stressed that not all the buyers you need to behave according to this logic is sufficient even one part starts to “spend more” to push prices up (although, clearly, with less force).
We close with a note: the approach we fix an installment and see that capital is “would be used prior to the choice of buying a house (maybe doing some simulations with various rates). Very often, before you see a property and then try to determine whether we can afford it, or in some cases trying to find ways to reach the amount requested. Have clear ideas about what you can afford help to focus instead on the one hand immediately to property “within reach”, the other to be more effective in bargaining, because the fixed point becomes the price of the house, but the availability economic.
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diggita.it Says: 20.04.10 at %I:%M %p
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