In case you’ve missed it, interest rates are really low right now and pricing is at levels that haven’t been seen in quite some time. I’ve prepared a simple analysis that shows you what this means for your purchasing power.
Assumptions:
1) Pricing has bottomed and price increases will return to our historical average of inflation. Let’s assume inflation stays around 3.0% for the next two years.
2) Interest rates return to 5.0% over a two year period. This is where rates were pre-recession. (Bankrate.com)
If these two scenarios happen, you’ll need to earn 23% more in two years to buy the exact same house that you could buy today (See table).
The question is, will your income go up by 23% in two years?
| Now | Next Year | The Year After | |
| Price Grown at Inflation | $150,000 | $154,500 | $159,135 |
| Years of Mortgage | 30 | 30 | 30 |
| Interest Rate | 3.75% | 4.25% | 5.00% |
| Pricple & Interest Payment | $694.67 | $760.05 | $854.27 |
| 9% | 23% |